Thailand Economic Monitor November 2005

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Thailand Economic MonitorNovember 2005

• Launch
• 3 November 2005

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Monitor Key Messages

• Tsunami, drought and oil price rise will reduce
  GDP growth in 2005 to 4.2. GDP growth in 2006
  will rise to 5.
• Floating of retail oil price is judicious
• Limit burden on Oil Fund
• Promote more efficient use of oil and energy
  conservation Reduce oil imports, which helps
  reduce current account deficits

3
Monitor Key Messages

• Helping firms to reduce production and operation
  costs will help them in adjusting to high oil
  prices
• Improving the Investment Climate can help reduce
  costs and also improve firms productivity
• Key improvements to investment climate needed
• Reduce regulatory burden
• Upgrade skills
• Improve infrastructure
• (Results of Thailand Productivity and
  Investment Climate Study)

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Real GDP Growth will be 4.2 in 2005

• GDP growth is expected to speed up in the second
  half year as net foreign demand increases

Real GDP Growth 2005
Growth rates of Change in Inventories H1 2005
85.8 H2 2005p -45.8 2005p 20.0
Source NESDB and World Bank
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Sharp oil price rise impact growths of
consumption, private investment, and production
this year
Increase in Retail Oil Price ()

• Retail oil price this year is 54 higher than in
  2002
• Raises 2005 inflation to 4.5 affects
  consumption
• Raises costs of production affects production
  and private investment this year

Source EPPO
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Rise in retail oil price are promoting
conservation
Growth in Gasoline and Diesel Consumption, 2002-
8M 2005
Source EPPO
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Exports growth to speed up in 2005H2, while
imports slowed

• Export Volume Growth

Import Volume Growth
Source BOT
Source BOT
8
FDI are still increasing
Gross FDI Inflows
Source BOT

• Gross FDI inflows rose in 2005 and much higher
• than 1988- 1992 levels

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Real GDP growth will rise to 5 in 2006 as
domestic demand picks up

• Real GDP Growth 2004, 2005p and 2006p

• Oil price will rise by 14 in 2006, compared to
  30 this year
• Real interest remains low at 4-5
• Bank loan continues to expand

Growth rates of Change in Inventories 2004
39.9 2005p 20.0 2006p 0
Source NESDB and World Bank
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FDI will continue the rise as Thailand remains
attractive
BOI Approval of FDI
UNCTAD Survey of worlds 325 largest
transnational corporations
Source UNCTAD Global Investment Prospects
Assessment, Sep 2005
Source BOI
11
External environment will be more favorable next
year
External Environment, 2004-2006
Source World Bank DEC Prospects Group update
Oct. 25, 2005. a/ In local currency, aggregated
using 1995 weights. The G-7 countries are
Canada, France, Germany, Italy, Japan, United
Kingdom, and United States.
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Going forward, higher private investment growth
needed to avoid supply constraints

• Capacity Utilization

• Over 1/3 of sectors have Cap U gt 80
• More than half of high exporting sector have cap
  u gt 80 or gt pre-crisis levels

Source BOT
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Improved investment climate helps to promote
investment and firm productivity

• Helps reduce cost of doing business more
  urgently needed as firms face high oil prices

Firms Concerns about Business Climate Results
from Thailand Productivity and Investment Climate
Study
Source Thailand PICS, 2005
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Reducing regulatory burden reduces firms costs
in doing business
Number of Days to Obtain Different
Licenses/Permits/Approvals/ Certificates
Labor Regulations Obstacle for Firms in Thailand
Source Thailand PICS, 2005
Source Thailand PICS, 2005
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Reducing skills shortage can help reduce large
wage premiums and firms loss of sales
Thailands Wage Premiums (Total Returns Relative
to Workers with Less than Secondary Education
Complete)
Sales Gain from Reduction in Weeks Taken to
Fill Vacancy for a Professional
weeks taken to fill vacancy
Source Thailand PICS 2005
Source Thailand PICS 2005

• Skills shortage vary from sector to sector
• Sector with more binding constraints can increase
  sales by more if constraints are relaxed
• Average sales loss across sectors is 15

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Improving skills will help increase firms
technological capacity

• Lack of skilled ICT workers is the major
  constraint to firms expansion of ICT use
• ICT use correlates with innovation

Constraints to Introducing or Expanding IT Use
Considered Important or Very Important
Source Thailand PICS 2005
17
Infrastructure Inadequacy needs to be addressed
Electricity, transport, telecommunications, and
water services need to be improved
Cross Country comparison of Mass Rail Transit
Length
Source Thailand PICS 2005
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The Thai Government is consistently pursing these
issues

• Regulatory burden
• Public sector reforms
• A committee has been established to take these
  issues forward
• Skills shortage
• Education reform secondary education and
  vocation education
• Inadequate infrastructure
• Public infrastructure investment plan
  (Mega-project)

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Public investment in infrastructure is needed
and timely

• Proposed public investment program is needed,
  given reduced investments since the crisis
• Estimated impact on fiscal current account
  balance debt, appears consistent with
  medium-term macro-stability, given current state
  of private investment recovery
• Infrastructure program should be prioritized to
  reduce cost raise quality of infrastructure
  services so that private investors
  competitiveness can be increased

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Given current state of private investment
recovery, estimated impact on fiscal, current
account, debt, appears consistent with
macro-economic stability
Mega-project investment plan appears consistent
with medium-term macro-stability
Mega-project Import Content, 2005-09
Public Investment as GDP 2005-09
Source Cabinet meeting Nov 1, 2005 and WB GDP
estimations
Source FPO, Sept 26, 2005 and Cabinet meeting
Nov 1, 2005
21
Current account deficits are not excessive
Current and Trade Accounts
Source BOT for 2003-04 and WB estimates for
2005-06
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Prioritizing infrastructure investments will
reduce cost raise quality of infrastructure
services

• Getting to the details
• Verifying the strategic importance of each
  investments
• Establishing sector investment priorities
• Making financial sense
• Establishing a mechanism to ensure quality
  throughout project preparation and implementation

Mega project investments by sector
Source Cabinet Meeting Nov 1, 2005
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THANK YOUFull report can be downloaded
fromwww.worldbank.or.th
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Medium term growth will help Thailand sustain
poverty reduction
Poverty Headcount Ratios in 2000, 2002, and 2004
Source NESDB Note Based on revised poverty line