Thai Economy Remains Strong

(30/03/2012)

The Thai economy has recovered from the flood crisis and is expected to enjoy a growth rate of 5.5 percent in 2012, with an inflation rate of 3.6 percent. Speaking about the outlook of the Thai economy, Director-General of the Fiscal Policy Office, Somchai Sujjapongse, cited domestic demand as a major driver of the Thai economy this year. He said that private sector consumption is likely to expand by 4.5 percent, which is an accelerating rate, as the people need to acquire more products to replace their property damaged by the flooding situation. Another reason is that the Government has a policy to stimulate spending. For example, it has decided to raise the daily minimum wage to 300 baht in seven provinces, starting from 1 April 2012. It will also implement the policy concerning the 15,000-baht monthly starting salary for new university graduates working for government agencies and state enterprises. The Government’s rice mortgage scheme for farmers has been carried out, as well. Private investment in 2012 is expected to expand by 11.9 percent. The automobile and automotive parts industry that was affected by the flooding situation has resumed its production and is receiving more orders from within and outside the country. Public investment is likely to expand at an accelerating rate of 12 percent. The increase is also attributed to the Government’s borrowing plan for water management. The Government had set aside 350 billion baht to create a new and improved water management system. The fund will be spent from the middle of 2012 onwards. Mr. Somchai said that Thailand would run a current account deficit of 3.5 billion US dollars in 2012, accounting for 0.9 percent of GDP. Regarding the Government’s fiscal balance in the first four months of the 2012 fiscal year, from October 2011 to February 2012, the Government earned 534.2 billion baht in revenue, an increase of 1.8 percent over the same period last year. On the other hand, the Government disbursed 640 billion baht, 23.2 percent lower than last year, due to the delay in the implementation of the 2012 national budget. As a result, the budgetary balance was in deficit of 106 billion baht. According to the Bank of Thailand, latest indicators pointed toward improvements in all key areas of the Thai economy, and manufacturing production remained on track to return to normal levels by the third quarter of this year. Domestic demand continued to be the main driving force for the economy, supported by improvements in income, employment, and private sector confidence, as well as government stimulus measures. Inflationary pressure remained stable in the short run, though risks persisted from rising global oil prices and the minimum wage increase. A pick-up in private demand and government spending could exert additional upward pressure on inflation, especially in the latter half of this year when the Thai economy moves closer to its potential.