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Thailand gains from improved trends

Bangkok Post
Published: 6/04/2011

Improving economic trends in the United States and Europe and rising farm prices will drive economic growth this year to the level seen before the 2008 global downturn, says the World Bank.

The Thai economy stands to benefit from high agricultural goods prices, which will improve local consumption and also create a slight shift in the export structure away from electronic and electrical goods.

"There was a change in sentiment on the outlook of the advanced economies in December. The unemployment rate in the United States has started to come down. The fear of a sovereign debt crisis in the Euro zone is behind us. The risk is still high, but lower than six months ago," said Frederico Gil Sander, the Thailand economist for the World Bank.

The bank yesterday raised its forecast of 2011 gross domestic product growth for Thailand to 3.7% from 3.2%. The new forecast, however, is still lower than that of Bank of Thailand at 4-5%.

The World Bank believes the Thai economy will benefit from more government spending, with the deficit likely to increase next year from 2011. A combination of rising demand among the fastest-growing economies, especially China, and supply disruptions amid increasingly unpredictable weather patterns imply that the trend of high farm commodity prices is likely to persist into 2011.

"The economy has recorded a switch from electronic parts and electrical appliances and labour-intensive goods such as furniture and footwear to automotive, petrochemical and agricultural products from 2007 to 2010," said Mr Gil Sander.

He said the export shift was a positive trend as it diversifies income away from goods whose prices have been subdued in the wake of sluggish global demand, although hard-disk drives and electrical appliances still enjoy the largest export value.

While the government's diesel subsidy is understandably a measure to curb increases in product price, authorities should gradually phase it out to force a change toward energy sufficiency, said the World Bank.

The reliance on cheap fuel for economic growth is higher than in Malaysia, the Philippines, China and Bangladesh, although it has been declining. An indicator is for this is that 98% of freight in Thailand is transported by trucks, he said.

"Our concern about the subsidies is not about fiscal sustainability. There is enough room to increase a bit of this and that as the debt level is still low," Mr Gil Sander said.

"Wouldn't it be a better thing if the government spent the money for those who need it most, instead of blanket subsidies for everyone? There are better ways such as cash transfers for poor households or improving their work opportunities."

The economy stands to lose competitiveness to regional economies such as Indonesia and Vietnam, which will be more competitive in terms of market size and business environment over the long term.

"In terms of network of suppliers, infrastructure, business environment, and cost benefits of labour, Thailand has a more comparative advantage right now. But these will disappear in 10 years' time," Mr Gil Sanders said.

Government agencies have constructive plans for building up the growth potential, but better co-ordination among ministries and priority setting could help speed up implementation, he added.

 

Source: http://www.bangkokpost.com/business/economics/230566/thailand-gains-from-improved-trends