Thailand’s Economic Situation in 2011 and Outlook in 2012

(04/01/2012)

The Fiscal Policy Office has predicted that the Thai economy in 2011 would grow by only 1.1 percent, as a consequence of the flood disaster. A better outlook is seen in 2012, with economic growth between 4.5 and 5.5 percent. The Director-General of the Fiscal Policy Office, Somchai Sujjapongse, said that the flood crisis had had a very bad impact on the manufacturing and agricultural sectors. Private consumption was likely to slow down and farmers’ income would also decline because of huge damage to agriculture. Inflation in 2011 is expected to stand at 3.9 percent, with higher production costs in food products, such as meat, vegetables, and fruit. Domestic fuel prices have also increased in line with crude oil prices in the world market. Private investment is likely to decelerate, because the flooding situation has compelled a number of factories to temporarily suspend production. Exports would also face a slowdown due to production disruption in the country and uncertainties in the global economy, as well as the problems of the debt crisis in Europe and unemployment in the United States. Export growth is expected to be 16 percent, while imports would increase by 23.3 percent. The unemployment rate is expected to be 0.7 percent of the total labor force in the country. Thailand would have a trade balance of 26.3 billion US dollars. As for outlook in 2012, the Fiscal Policy Office pointed out that the implementation of the Government’s restoration and rehabilitation measures would be a supporting factor to spur the Thai economy. Private consumption is likely to grow by 3.8 percent. The Government’s policies of raising the daily minimum wage and the starting salary for new graduates holding bachelor’s degrees and working in the public sector would stimulate public spending. Private investment is expected to grow by 10.3 percent, with the Government’s post-flood rehabilitation as a supporting factor. The effect of the global economic slowdown is likely to bring down Thailand’s export growth to about 9 percent. The government spending would grow by 4.5 percent. According to an economic report issued recently by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), the devastating flooding in Thailand would reduce the country’s economic growth to 2 percent for 2011. However, the Thai economy should bounce back in 2012 thanks to post-flood reconstruction. As a result of post-disaster investments for economic recovery, Thailand’s growth rate in 2012 is expected to be 4.5 percent. With a low public-debt level, at 40 percent, Thailand has fiscal space for investment to rebuild infrastructure for better flood management.