Thailand Economic Monitor - April 2011

April 5, 2011

Key Findings

  • After a roller coaster ride in 2010, Thailand’s economic activity is gradually returning to normal.  Quarterly economic growth rates are now closer to the levels often seen before the global financial crisis began in 2008. For 2011 as a whole, the World Bank now predicts that the Thai economy will grow 3.7 percent, a slightly upward revision from its earlier estimate of 3.2 percent.
  • Domestic consumption has been driven by rising farm income on the back of higher agricultural prices, which helped to boost overall wages. Favorable interest rates also encouraged more purchases of new vehicles and houses.
  • A strong recovery of tourism and a surge in external demand for autos and agricultural products helped boost Thai exports in the fourth quarter of 2010. Meanwhile, the impact of rising food and international fuel prices on the Thai economy has been cushioned by domestic price controls and robust export growth.
  • The main downside risks to the outlook are external. In particular, the Thai economy remains exposed to further oil price shocks both directly and through the follow-on impact on Europe’s debt crisis and the United States’ fragile economic recovery. Uncertainty regarding the extent of disruption to the auto and electronics industries’ supply chains caused by Japan’s recent earthquake is another key risk.
  • Crop prices are likely to remain high in 2011 due to the link to high oil prices, demand from fast-growing developing economies and frequent supply disruptions caused by unpredictable weather conditions. Spiraling food prices will hurt the poorest population in Thailand. The rising cost of living as well as fertilizer prices may also offset income gains Thai farmers have been enjoying, especially if oil prices increase further.
  • Replacing oil price subsidies with targeted assistance programs could help re-direct government support toward the neediest households in the short term. Central Bank increases of interest rates should also be done gradually to avoid causing any damage to the economy which is still not on a firm footing.
  • In the long term, improving energy efficiency and reducing dependence on imported energy would help Thailand manage the risk of another oil price shock.
  • As the world population continues to grow and the impact of climate change threatens global food security, investing to improve the reliability of food production could help Thailand respond to another food crisis more effectively.