1

Pattama TeanravisitsagoolMacroeconomic Strategy and Planning, Director

Office of the National Economic and Social Development Board 27 April 2009

Macroeconomic Perspectives for Thailand

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Outline of presentation

• Current economic situation: Thailand, in Q4/08, experienced first contraction in 10 years.

• Economic outlook in 2009-2010:Domestic demand-led recovery; a challenging task for Thailand?

• Policy framework/guidelines to revive the Thai economy: Policy combination of short-term stimulus package and long-term investment projects aimed at strengthening economic and social fundamentals in a bid for Thailand to cope with a changing global economic landscape after this crisis?

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3

Direct impacts on financial institutions

Related impacts on International capital

movement

Impacts on Thai exports and tourism

- Total foreign exposure (which includes loan in foreign currency and investment in foreign debt and equities) as a percentage share to total assets of financial institutions was only approximately 7.5% - Hence, direct impacts on financial institutions were limited.

- Capital outflows from portfolio investment - Thai stock market’s

volatility and decline in set index and hence decline in wealth- Depreciation of baht

currency

- Contraction in world demand - decline in trade finance- growing concern over

protectionism

Impacts of sub-prime and world economic crisis on Thailand

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Currently, the Thai economy is in a contraction period

1987-91 1992-96 1997-981999-

20012002-06 2007-08

GDP 10.9 8.1 -5.9 3.9 5.6 3.8

Inflation 4.7 4.8 6.9 1.2 2.9 3.9

Current Account/GDP 1/ -7.7 -8.1 12.8 7.4 1.2 -0.1

External Debt/ GDP 1/ 44.4 65.9 69.9 56.1 32.8 26.8

Source: NESDB 1/ at the final year of each period

GDP Growth

-6

-4

-2

0

2

4

6

8

10

Q1

01

Q3 Q1

02

Q3 Q1

03

Q3 Q1

04

Q3 Q1

05

Q3 Q1

06

Q3 Q1

07

Q3 Q1

08

Q3

%

GDP at 1988 prices

• Low interest rate, banks’ lending

data and consumption expanded

at an accelerating rate.

• Private investment expanded significantly.

• Noticeable recovery of the global

economy bolstered the country’s exports.

Global economic recession

• The Tsunami disaster

• High crude oil prices/inflation

Q4/08 saw the first economic contraction in 10 years

• Oil price

• World economic

recession• Political unrest

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Q4/2008 saw the first contraction in 10 years

(%)GDP Growth

2550

Quarterly economic growth

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

8

Q1

/04

Q1

/05

Q1

/06

Q1

/07

Q1

/08

%

GDP

2006 2007 2008

Year Q1 Q2 Q3 Q4

GDP 5.2 4.9 2.6 6.0 5.3 3.9 -4.3

GDP (QoQ annualized)

5.2 4.9 2.6 0.9 0.6 0.4 -6.1

Hampering factors:• Military coup in September 2006 • Rapid increase in oil prices in

H2/2007 and H1/2008 • World economic recession has

prevailed since Q4/2008• In Thailand, followed again by

political unrest in 2009Source: NESDB

Export-led

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- Decline in consumption

& investment -Decline in World trade volume - Reduction in manufacturing production

- Gloomy confidence

Risks & uncertainty associated with the outlook

Thailand’s Economic Outlook in 2009Economic contraction will continue…

World econ. recession

• Bottoming out in H1/2009?

• Weaker economic momentum in emerging Asia; an important regional growth engine

Political uncertainty

- Main economies

(US, EU, Jap) contracted

• Dampen market sentiment and public

confidence and delay the recovery of

domestic demandConsumer and

business confidence

key for policy effectiveness

• Discourage domestic demand and limit effectiveness of accommodative policies

Low CAPU &

Excess capacity

Highunemployment

- Key Asian economies

(Taiwan, S. Korea, HK, Thailand, Singapore) contracted

- Emerging Asian Economies

(China, India, Viet Nam) slow down

World scenario

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12…contributed by severe contraction in exports, which had

been key driver to the Thai economic growth in 2006-2007.

While domestic demand remain weak and policy effectiveness is constrained….

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Changes in inventory and statistical discrepancies

Net exports

Domestic demand

GDP

%

Source: NESDB

In 2008, however, 1. Imports increased much faster than exports. Net exports, therefore, contributed less to growth than in 2006-20072. Stocks were built up as the consequence of the surge in imports, particularly of such items as steel and iron, auto parts, electronic parts, and gold. Change in stocks, therefore, contributed a big share of growth in 2008.

Contribution to growth

1 13

source: BOT

Thailand Economic Outlook in Q1/09 :

2007 2008 2008 2009

%YOY Year Year Q1 Q2 Q3 Q4 ธ.ค. ม.ค. ก.พ. มี.ค.

Private Consumption Index 1.5 3.6 2.7 2.5 2.7 2.2 0.8 -4.0 -7.1

Value added Tax (VAT) 3.3 9.0 9.9 9.4 16.3 0.8 -1.5 -13.2 -25.2

Private Investment Index -0.5 3.5 5.9 4.6 3.7 -0.1 -3.6 -9.7 -12.9

Export value 17.3 16.8 23.8 28.9 28.4 -9.4 -15.7 -25.3 -11.1 -23.1

- excluding gold 16.6 15.7 22.9 27.4 27.9 -11.1 -21.1 -28.9 -24.5 -24.5

Import value 9.1 26.4 35.0 28.7 39.1 5.3 -8.8 -36.4 -43.5 -35.1

- Capital goods 3.6 19.5 39.4 17.0 21.1 4.5 -4.7 -28.5 -15.1 -24.7

MPI 8.2 5.3 12.6 10.1 7.7 -8.1 -18.5 -21.3 -19.8

Capacity Utilization 72.6 67.7 73.6 69.3 67.9 60.2 57.3 57.1 55.4

Number of foreign Tourists 20.0 0.5 13.3 15.0 -1.8 -19.4 -26.7 -10.5 -23.2

Unemployment rate 1.4 1.4 1.6 1.4 1.2 1.3 1.4 2.4 -

Number of unemployment claim of insured workers

(in thousand)280.4 387.6 82.0 94.9 90.9 119.8 49.3 66.8 101.9 76.3

Consumer Confidence Index 77.1 77.8 79.4 78.9 77.8 74.9 74.8 75.2 74.0 72.8

Business Confidence Index 43.4 41.9 45.9 42.6 41.1 36.5 36.9 36.3 37.4

Industrial Confidence Index 80.9 77.2 84.1 74.6 80.3 70.1 62.9 64.1 63.0 69.4NESDB 2009

Contraction in Consumption, Investment, and Supply side Sharp contraction in export Rising unemployment Decline in Consumer Confidence

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Expenditure side: contraction in first 2 months of 2009

Private consumption

index: -5.5%

Private investment index:

-11.3%

Private Expenditure

Q1/09 Export value in USD term

-19.8%

Q1/09 Import value in USD term

-38.3%

International Trade

-16

-12

-8

-4

0

4

8

12

2006 2007 2008 2009

(%)

Private investment Index

Private consumption Index

-60

-50

-40-30

-20

-10

0

10

2030

40

50

60(%YOY,

3mma) Import

Export

Both export and import value sharply contracted in Q1/088

Private expenditure expected to contract in Q1/08

-4.0% -7.1% Jan. Feb.

-9.7% -12.9%

2009 Jan. Feb. Mar.

Export -25.3% -11.1% -23.1%Import -36.4% -43.5% -35.1%

Source: BOT

1 17

-80

-60

-40

-20

0

20

40

60

80

2549 2550 2551 2552

(% Y

OY

,3m

ma

)

Consumer goods Raw mat. & intermediate Capital goods Auto and partsCrude oil & lubricant TotalLine 7

Imports by economic classification: broad-based contraction

2008 2009_p

(% YOY) Year Q1 Q2 Q3 Q4 Q1 %Share

Consumer goods 25.1 37.3 32.6 33.1 2.6 -17.6 10.3

Raw mat. & intermediate 21.9 25.8 27.2 37.4 -1.9 -44.9 36.3

Capital goods 19.5 39.4 17.0 21.1 4.5 -22.7 33.2

Auto and parts 24.4 40.6 28.4 27.0 6.5 -34.2 3.4

Crude oil & lubricant 44.2 68.5 51.2 60.0 6.1 -37.6 15.6

Total 27.6 37.9 29.3 39.9 6.1 -37.7 100.0

Source: BOT p: preliminary

1 19

On the production side:

Agriculture output and prices are likely to slow down

Source: BOT

1 20

Production side: continued decline in first 2 months

-22

-18

-14

-10

-6

-2

2

6

10

14

18

22

2006 2007 2008 2009

Index

40

45

50

55

60

65

70

75

80(%)

Capacity Utilization (RHS)

MPI (LHS)

MPI -20.5%

CAPU = 56.2% (Year 2008 = 67.6% Year 1997 = 69.9%)

Number of Tourists declined

200

400

600

800

1,000

1,200

1,400

1,600

2005 2006 2007 2008

Thousand

-50

-40

-30

-20

-100

10

20

30

40

50

(%)

No.Tourists %YoY

Number of foreign tourists: -

16.9%

Production

Services

MPI growth fell in Q1/08

Jan. Feb.

Foreign tourists (Mil. persons)

1.29 1.14

(%YOY) -

10.5

-

23.2

(Jan. -21.3% Feb. -19.8%)

1-19 April = -8.2%

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2007 2008 2009

year year Q1 Q2 Q3 Q4 Jan. Feb. 2m

MPI growth 8.2 5.6 12.6 10.1 7.6 -8.1 -21.2 -19.8 -20.5

- Export < 30% 2.1 6.4 12.7 9.9 4.6 -1.2 -15.6 -21.1 -18.4

- 30%<Export<60% 1.0 -1.3 3.5 1.3 -0.8 -9.9 -11.7 -14.5 -13.1

- Export > 60 18.0 8.2 18.8 15.8 14.4 -11.5 -30.9 -22.3 -26.6

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Manufacturing Index (MPI, % growth)

2007 2008 2009

year year Q1 Q2 Q3 Q4 Jan. Feb. 2m

CAPU 72.5 67.6 73.5 69.2 67.9 60.1 57.1 55.4 56.2

- Export < 30% 76.0 75.4 79.2 78.1 75.3 69.5 67.2 64.2 65.7

- 30%<Export<60% 69.3 64.8 80.2 63.3 61.7 54.1 64.4 60.6 62.5

- Export > 60 70.1 59.8 63.6 61.9 62.3 52.4 41.7 42.6 42.1

Capacity Utilization (CAPU, % rate)

MPI by export orientation

1 22

Rise in unemployment

0

20

40

60

80

100

120

มค

50

มค

51

มค

52

(พันคน)

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

49 50 51 52

(%)

0

0.5

1

1.5

2

2.5

3(Mil.

people)

unemloyment rate (RHS)

Number of unemployed (LHS)

Number of unemployed person in Jan/09 was 900 thousand persons, up from 500 thousand in Dec/09

Unemployment rate in Jan/09 = 2.4% (year 2008 = 1.4%)

unemployment unemployment

Number of claims for unemployment compensation (for insured workers) totaled 245 thousand persons in Q1, increased by 198.8%

Number of insured workers who claim for

unemployment benefits

2008 = 387.6 thousand people Q1/2009 = 245.0 thousand people Jan/09 = 66.8 thousand people Feb. = 101.9 thousand people Mar = 76.3 thousand people

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Inflation and Chnages in PPI

-2

0

2

4

6

8

10

50 51 52

%

-10

-5

0

5

10

15

20

25%

Headline inflation (LHS) PPI (RHS)

Prices of food and energy

-40

-20

0

20

40

50 51 52

%

Fresh food Energy

Prices:

Headline inflation = -0.3% in Q1/09

Core inflation = 1.6% in Q1

Consumer and producer prices Decreasing prices: deflation threat?

Producer price index declined by 3.5% in Q1

Jan. Feb. Mar.

H. Inflation -0.4 -0.1 -0.2

Core inflation

1.6 1.8 1.5

PPI -2.5 -4.0 -4.0

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Thailand’s Stimulus Packages and

Macroeconomic management

25

Stimulus Package I

25Policy mix/Policy coordination to stabilize and stimulate the economy

Monetary Policy

Low Interest

Rate policyFrom 2.5% to 1.25%

Closely monitoring

of financial liquidity

Macro prudential policyto prevent

financial imbalances and to ensure stability of

financial institutions

Fiscal Policy

Support for

consumer spendingthrough…

Public investmentProjects

Stimulus Package II

Personal tax cuts &

Transfer paymente.g. more generous

unemployment insurance

benefit, subsidy to senior

citizen, cash handout

for low income-earners, free education, etc.

3-Years Public

Investment Projectse.g. Infrastructure

projects, education

development-related

projects, water system

development projects,

health care upgrading-related projects etc.

1 26

Economic recovery measuresStimulus Package 1

1 27

Stimulus Package 1

- Strong boost to domestic demand is key and imperative for the road to recovery in 2009 while Thai exports will contract throughout 2009. The measures under SP I are aimed to mitigate impacts of economic slowdown.

-In January 2009, Abhisit's government announced a Bt116.7 billion (US$3.35 billion) stimulus package aimed at boosting domestic demand shore up an economy which has been battered by the global downturn and political turmoil and last year's airport blockade. Excluding an amount paid back to treasury balance, this is a one-year 2,700 mil. USD (or 93,000 million baht) program.

- The stimulus package was 2009 based on 4 principles as guidelinesfor implementation, namely timely, transparent, temporary, and targeted.

-The plan comprised a mix of cash handouts for low earners, tax cuts, tax deductible for mortgage payment up to 300,000 baht, expanded free education, monthly payments to the elderly and volunteer health-care workers, and subsidies for transport and utilities.

- If implemented by Q2/2009, potential boost of GDP is expected to be around 0.5-0.7 percent of GDP.

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Economic recovery measuresStimulus Package 2

1 29

- Public investment programs will be in effect for 2010-2012-Stimulate economic activities and create jobs in the SR and also build strong economic and social foundations in the LR to enhance competitiveness in the context of stronger tide of globalization and regional integration- Also include community involvement

•Projects to develop and improve water grid system

•Programs to develop and improve infrastructure, logistic system, and other public services/facilities

•Programs to promote tourism income •Projects to increase potential of Thailand’s creative economy

• Plans to upgrade quality of Thai education • Projects on health care/public health system reform

• Investment projects to upgrade income-earning of Thai people especially those in the rural areas

Three-year 1.56 trillion baht or 45 billion USD of public

investment plan was announced in March 2009.

1 30

Key concerns: Political uncertainty and low public confidence could be constraints for

policy effectiveness

60

70

80

90

100

110

120

130

Jan

2004

Jul Jan

2005

Jul Jan

2006

Jul Jan

2007

Jul Jan

2008

Jul Jan

2009

Economic Job Opportunity

Future Income CCI

Consumer confidence remains low

30

40

50

60

Jan

2003

Jul Jan

2004

Jul Jan

2005

Jul Jan

2006

Jul Jan

2007

Jul Jan

2008

Jul Jan

2009

BSI Expected BSI (next 3 months)

Business sentiments remains low

If fully disbursed and timely

implemented could increase public

investment by 0.2% of GDP in 2010,

0.5% of GDP in 2011, and 1% of GDP of

2012.

If fully implemented, will stimulate

growth and improve Thailand’s

competitiveness.

The government is working in preparing

project details to reduce risk of

implementation delay so that to achieve

full impacts.

Political uncertainty and protracted low

public confidence remain key risks for

policy effectiveness.

Government’s deficit is appropriately

counter-cyclical and the deficit must be managed to decline after a few years.

Source 2009 (%) Forecast date

World Bank (-2.7) 7 Apr 09

IMF (-3.5) 7 Apr 09

ADB (-2.0) 1 Apr 09

BOT (-3.5) – (-1.5) 22 Apr 09

FPO (-3.0) – (-2.0) 25 Mar 09

NESDB (-3.5) – (-2.5) 25 May 09

Economic outlook for 2009

The economy is likely to contract by 5%-6%, in H1/2009, before it recovers to zero growth, yoy, in H2/09 provided the world economic and political factors improve in H2. Positive yoy growth in H2 is possible on the back of effective implementation of SP I and SP can kick in right away in Q4/09. Depletion of stocks in H1 is reflected in the reduction of imports and production to

a greater extent than the decline in sales. It is, thus, expected that more product line will resume in H2. That means laying off of labour should bottom in H1. Private investment will contract by 5%-8% in 2009.There is still possibility that private consumption expenditure increase slightly by

1%-2%, supported by government programs.

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Growth Outlook….

• However, in terms of growth component in 2009, the GDP data in 2009 could be significantly contributed by net exports, given that imports will contract more severely. Big contribution from domestic demand is expected to realize in 2010 when the SP II is implemented.• Contraction in imports and bigger reduction in production than is sale will be on the expenses of de-stocking of inventory. That is stock accumulation will likely be negative contribution for growth in 2009 as compared to relatively large positive contribution in 2008. •Trade surplus is predicted based on the prospect of faster decline in imports than in exports. The pressure on baht currency will subside, as a result.

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