Recovery in Flood-hit Industries Is Satisfactory

(06/08/2012)

Production constraints as a consequence of severe floods last year continue to ease. An assessment made by the Monetary Policy Committee of the Bank of Thailand indicates that recovery in flood-hit industries is also satisfactory. The Assistant Governor of Bank of Thailand, Mr. Paiboon Kittisrikangwan, stated that post-flood recovery had been robust in the first half of 2012. However, growth momentum is likely to slow down in the second half, as the global economy weakens and private sector demand begins to decelerate, after picking up earlier. Mr. Paiboon pointed out that production of automobiles and electrical appliances has returned to full capacity but is still short of the high demand following the flooding. Although production of hard-disk drives has resumed to normal conditions, this industry has been affected by the slowdown in global demand. As for the integrated circuit industry, it is expected to recover fully in the fourth quarter, as some manufacturers are still waiting for new machines imported to replace the old ones damaged by floods. The production sector is likely to grow further despite risk factors from labor shortages and the protracted slowdown in the global economy. Private sector demand has rebounded to the pre-flood level, and investment has been growing favorably because of the need for post-flood reconstruction and rehabilitation. Investors remain confident in the overall economic situation and are likely to commit to long-term investment plans, which will lead to investment expansion. Private sector consumption is on the rise. In particular, demand for automobiles was higher in the first half of the year, as well. However, it is likely to decelerate in the second half. Even so, overall momentum should be supported by good income prospects, continued fiscal stimulus, and favorable monetary conditions. Exports have not yet recovered fully because of weakened global demand. Exports of industrial goods are likely to slow down, while agricultural exports have been affected by contraction in rice exports. Thanks to the continued growth of the tourism sector, exports of services are expected to remain resilient. Imports are projected to decelerate in the second half of the year, as a result of the declining reconstruction needs. The Monetary Policy Committee stated that major risks to the Thai economy still come from the slowdown in the world economy, although some progress has been made in the tackling of the debt crisis in Europe. The euro economy is viewed to remain in recession in 2012, before picking up gradually in early 2013. Overall, the Thai economy in the second quarter of 2012 will continue to improve, while inflationary pressure is on the decline. The Monetary Policy Committee sees pressure from oil prices as rather limited. Heightened concerns on global growth will continue to weigh on global oil prices. Also, domestic retail oil prices are likely to be steady this year. At the same time, commodity prices are projected to recover gradually in line with the trends of oil prices.