Transcript Thailand Economic Monitor

Thailand
Economic Monitor
November 2005
Launch
3 November 2005
1
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
2
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 firm’s
productivity
 Key improvements to investment climate needed
 Reduce regulatory burden
 Upgrade skills
 Improve infrastructure
(Results of Thailand Productivity and Investment Climate Study)
3
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
30
H1 2005
H2 2005 p
2005p
25
H1 2005 = 85.8%
H2 2005p= -45.8%
15
2005p= 20.0%
10
5
Imports
Exports
Public I
Private I
Government C
0
Private C
Annual % change
Growth rates of Change in Inventories
20
Source: NESDB and World Bank
4
Sharp oil price rise impact
growths of consumption, private
investment, and production this year
Increase in Retail Oil Price (%)
60
percentage change
50
40
30
20
10
0
2002-2005
2003-2005
2004-2005
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
5
Rise in retail oil price are
promoting conservation
Growth in Gasoline and Diesel Consumption, 2002- 8M 2005
15
Gasoline
High Speed Diesel
percent, y-o-y
10
5
0
-5
-10
2002
2003
2004
8M2005
Source: EPPO
6
Exports growth to speed up in 2005H2,
while imports slowed
Export Volume Growth
Import Volume Growth
30
35
30
25
percentage change, y-o-y
percentage change, y-o-y
25
20
15
10
5
0
-5
20
15
10
5
0
-10
-15
-5
2004
H1 2005
Q3 2005
2004
H1 2005
Agricultural products
Fishery products
Consumer Goods
Raw M aterials
M anufactured products
Total
Fuel & Lubricant
Total
Source: BOT
Q3 2005
Capital Goods
Source: BOT
7
FDI are still increasing
Gross FDI Inflows
8
7
Billions of US$
6
5
4
3
2
1
0
Avg
1988/92
2003
2004
8M 2004
8M 2005
Source: BOT
Gross FDI inflows rose in 2005 and much higher
than 1988- 1992 levels
8
Real GDP growth will rise to 5% in 2006
as domestic demand picks up
Real GDP Growth 2004, 2005p and 2006p
18
2004
2005p
2006p

16
Annual % change
14
12

10
8

6
4
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
2
Imports
Exports
Public I
Private I
Government C
Private C
0
Growth rates of Change in Inventories
2004 = 39.9%
2005p = 20.0%
2006p = 0%
Source: NESDB and World Bank
9
FDI will continue the rise
as Thailand remains attractive
UNCTAD Survey of world’s 325
largest transnational corporations
BOI Approval of FDI
100% foreign equity
10%<foreign equity<100%
400
250
Ranking of FDI Prospects in
Asia 2005-2008
Top 1
China
200
Top 2
India
150
Top 3
THAILAND
100
Top 4
Vietnam
50
Top 5
South Korea
350
Bt Billion
300
0
2002
2003
2004
Jan-Sep
2004
Jan-Sep
2005
Source: UNCTAD Global Investment Prospects
Assessment, Sep 2005
Source: BOI
10
External environment will be more
favorable next year
External Environment, 2004-2006
2003
2004
2005p
2006p
% Change from previous year, except interest rates
GDP Growth
World
2.5
3.8
3.1
3.1
World (PPP Weights)
3.9
5.0
4.4
4.3
1.8
3.0
2.4
2.5
United States
2.7
4.2
3.5
3.5
Japan
1.4
2.6
2.3
1.8
Euro Area
0.7
1.7
1.1
1.4
World Trade (Volume)
5.8
10.3
6.4
7.0
CPI Inflation - G7 a/
1.5
1.7
2.2
2.0
28.9
37.7
53.6
56.0
15.9
30.6
42.1
4.5
10.2
17.5
11.9
-5.9
1.2
1.7
3.8
5.0
OECD
Oil Price - $/bbl
- % Change
Non-oil Commodity Prices
LIBOR (US$. 6 Mo.)
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.
11
Going forward, higher private investment
growth needed to avoid supply constraints
Capacity Utilization
Capacity utilization
CU in 8M 2005 >90%
Soy milk
Tin metals*
Compressor*
Craft paper
Intermediate petrochemical
Hard disk drive*
Printing & writing paper
Rubber glove*
Synthetic fibres
Downstream petrochemical
Upstream petrochemical
80%<CU in 8M 2005 <90%
Concrete products
Pulp
Tyre
Zinc metals
Motorcycle
Petroleum products
Washing machines*
Air-conditioners*
Commercial car
Paper board
Weights
59.10
9.3
0.1
0.1
0.2
0.6
0.7
4.7
0.2
0.3
0.8
1.2
0.4
15.0
0.2
0.6
0.9
0.1
0.7
9.5
0.1
0.9
2.1
0.0
Ave 8M 95/96
76.41
8M 2004
67.86
8M 2005
70.41
54.6
31.0
67.4
n.a.
56.0
n.a.
n.a.
n.a.
86.8
126.9
42.0
115.1
59.5
92.5
81.2
98.6
71.5
89.7
93.3
103.2
95.5
93.8
131.5
103.6
101.6
101.0
100.1
100.0
95.4
95.0
92.6
92.2
91.0
n.a.
77.6
88.3
92.1
79.3
87.5
72.0
90.3
86.5
n.a.
71.1
92.3
87.8
95.5
78.9
84.1
93.9
82.0
72.2
77.5
89.6
88.9
88.8
87.3
86.7
86.3
84.7
81.8
81.8
80.4
• Over 1/3 of sectors
have Cap U > 80%
• More than half of
high exporting
sector have cap u >
80% or > pre-crisis
levels
Source: BOT
12
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
Regulatory Burden
Skilled Labor Shortage
Infrastructure and
Support Services
Source: Thailand PICS, 2005
0
10
20
30
40
50
60
Percent of Firms Identifying Issues as One of Three Top Obstacles
70
13
Reducing regulatory burden reduces
firms’ costs in doing business
Number of Days to Obtain Different
Licenses/Permits/Approvals/ Certificates
Percent of Firms Identifying Regulation as "Severe" or "Very Severe" Obstacle
Labor Regulations Obstacle
for Firms in Thailand
Avg
St. Dev
Coeff Variation
Ministry of Commerce
10
20
1.9
Department of Industrial Works
17
22
1.3
Immigration Department
Land Office
10
13
14
22
1.4
1.7
25.0
Local Government
10
15
1.6
20.0
Source: Thailand PICS, 2005
45.0
40.0
35.0
30.0
15.0
10.0
5.0
0.0
Hiring procedures for
local workers
Hiring procedures for Layoff procedures/cost
foreign workers
of retrenchment
Thailand
Limits on temporary
hiring
Inflexible salary scale
for skilled workers
Malaysia
Source: Thailand PICS, 2005
14
Reducing skills shortage can help reduce large
wage premiums and firms’ loss of sales
Thailand’s 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
45
40
percent
35
30
25
20
15
10
5
0
High school/
Por Wor Chor
Source: Thailand PICS 2005
Por Wor Sor
College Degree
Number of Days Taken to Fill Latest Vacancy
to fill vacancy
# weeksfortaken
a Professional
50
9
8
Clothing
8
Wood
Products/Furnit.
Auto-parts
7
Rubber/Plastics
7
Machinery/Equipmen
Food Processing
t
Textiles
6
6
Electronics/Elec.
Appliances
5
5
4
0
5
10
15
20
25
30
35
40
45
50
% Sales Gain from Reduction in Skill Shortages
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%
15
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”
Constraints
Small
Medium
Large
Lack of knowledge and trained IT personnel
42%
35%
33%
Lack of experienced consultants to provide or
design IT-based solution systems
39%
37%
32%
High cost of IT equipment and maintenance
20%
18%
18%
Low returns to investments in IT
15%
12%
11%
Source: Thailand PICS 2005
16
Infrastructure Inadequacy needs to be addressed
Electricity, transport, telecommunications, and water services
need to be improved
Cross Country comparison of Mass Rail Transit Length
Numbe r of Time s of Powe r O utage
Thailand
City
Bangkok
KL
Manila
Hong Kong
Singapore
London
Beijing
Malaysia
China
Russia
Turke y
0
5
10
15
20
Population (Million
persons)
9
1.4
10
7
4.2
7.4
13
Length of Mass Rail Transit
Lines (Km.)
44
65
46
219
89
463
113
Pe rce ntage of Wate r Coming from Own Source s
Fre que ncy of Phone Inte rruptions Last Ye ar
Indone sia
Thailand
Thailand
Malaysia
Philipine s
Brazil
Brazil
Philipine s
Malaysia
Indone sia
0
0
1
2
3
4
5
6
7
10
20
Source: Thailand PICS 2005
30
40
50
60
70
17
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 (Megaproject)
18
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 macrostability, 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
19
Mega-project investment plan appears
consistent with medium-term macro-stability
Public Investment as % GDP 2005-09
10
9
Mega-project Import Content, 2005-09
Non-mega
project
M ega-project
Import content (LHS)
% of GDP (RHS)
200
2.5
8
6
5
4
1.5
100
1.0
% GDP
2.0
150
Billion Bt
% GDP
7
3
50
2
0.5
1
0
0
2005
2006
2007
2008
2009
Source: Cabinet meeting Nov 1, 2005 and WB GDP estimations
0.0
2005
2006
2007
2008
2009
Source: FPO, Sept 26, 2005 and Cabinet meeting Nov 1, 2005
Given current state of private investment recovery, estimated impact
on fiscal, current account, & debt, appears consistent with macroeconomic stability
20
Current account deficits are not
excessive
Current and Trade Accounts
10
8
8
6
6
US$ Billion
2
2
0
-2
0
-2
-4
% of GDP
4
4
-4
-6
-8
-6
-10
-8
2003
2004
2005p
2006p
Current Account
T rade Account
Current Account (% GDP)
T rade Account (%GDP)
Source: BOT for 2003-04 and WB estimates for 2005-06
21
Prioritizing infrastructure investments will
reduce cost & raise quality of
infrastructure services
Getting to the details
Mega project investments by sector
450

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
400
350
Billion Bt
300
250
200
150
100
50
Others
Public Health
Education
Water
Resources
Housing
Transportation
Mass Transit
0
Source: Cabinet Meeting Nov 1, 2005
22
THANK YOU
Full report can be downloaded from
www.worldbank.or.th
23
Medium term growth will help Thailand
sustain poverty reduction
Poverty Headcount Ratios
in 2000, 2002, and 2004
Region
Bangkok and vicinity
Central
North
Northeast
South
Whole Kingdom
2000
1.6
10.5
23.5
35.0
17.1
21.3
2002
2.2
8.0
18.7
23.7
13.8
15.5
2004
1.6
5.1
16.2
17.2
7.8
11.3
Source: NESDB
Note: Based on revised poverty line
24