Thai Economy at the Cross Roads : Opportunities and Challenges

Transcription

1 Thai Economy at the Cross Roads : Opportunities and Challenges Nipon Poapongsakorn Thailand Development Research Institute International Conference on ASEAN Integration under the Global Political and Economic Trends : Major Issues, Impacts and Responses. Organized by Chung- Hua Institution for Economic Research, Taiwan ASEAN Studies Center, Taipei, September 6,

2 Topics of discussion Performance of Thai economy in 2012 : roller coaster Outlook in 2013 and risks Key challenges facing the Thai economy in the medium term Some policy implications 2

3 1.Performance of Thai economy in 2012 : roller coaster GDP in the second quarter of 2012 grew by 4.2% compared to 0.4% in Q1/2012, thanks to a strong expansion of domestic consumption (5.3%) and investment (10.2%), while government consumption grew by 5.6% 3

4 QGDP Growth Global financial Crisis Political Crisis Flood Tsunami in Japan Source: NESDB.

5 Performance of Thai economy in 2012 : roller coaster Non-agricultural growth was 4.5%, compared to 0.1% in previous quarter. This is because of the recovery of the manufacturing sector after facing the flood disaster But agricultural growth slowed down from 3.4% in Q1/2012 to 1.3% in Q2/2012 mainly because of the fall in rice export which was the consequence of the paddy pledging policy 5

6 Performance of Thai economy in 2012 : roller coaster After a brief recovery from the 2011 flood, Thailand is now expected to experience a sharp reduction in export growth, thanks to the EU crisis 6

7 Source: Bank of Thailand and NESDB. Performance of Thai economy in 2012 : roller coaster

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9 2. Outlook in H2/2012 and 2013 and risks Though IMF predicted a sharp economic rebound in April, the EU crisis will push down Thai GDP growth in H2/2012 and 2013 mainly through the slower growth of export (from 15% to about 4-5% in 2012) Annual growth in 2012 may be % It will pick up to 7-7.5% in 2013, according to IMF, depending on the growth of EU and USA 9

10 Forecasted GDP growth in 2013

11 2. Outlook in H2/2012 and 2013 and risks Growth opportunity in 2013 A major investment project is expected to bring back investors confidence and generate high economic growth in , i.e., the million USD flood prevention program 11

12 2. Outlook in H2/2012 and 2013 and risks What are the concerns and downside risks? External risk 1 : intensification of Euro zone crisis, fiscal cliff and double dip recession External risk 2 : higher oil prices as a result of international boycott of Iranian oil Internal risk 1 : increased government spending for the populist policy by borrowing without additional tax revenue 12

13 Fiscal Measures and Estimated Costs Policy Lower corporate tax rate (from 30 percent to 23 percent) Estimated Cost (% of GDP) 1.2 Diesel fuel excise tax cut 1/ 1 Rice price guarantee scheme 1 Tax refund for first time car buyer (beginning FY13) 0.2 Note: 1/ If the tax cut is phased out in the coming months, the impact in FY12 would be 0.7 percent of GDP Source: IMF April 2012.

14 Public Sector Debt will increase after 2012 as a result of increased borrowing (In percent of fiscal year GDP)

15 Thai public debt is still lower than other ASEAN countries

16 Thailand has the lowest rate of VAT

17 2. Outlook in H2/2012 and 2013 and risks How large is the expected impact of the risks? 17

18 Short-tern challenge : how would the government use fiscal and monetary policy to counteract the negative impact of Euro zone crisis in m1-m5/2012 สถานการณ ตลาดส งออกของไทยในช วง 5 เด อนแรกของป 2555 (BCG Analysis for Thailand s Export Markets) Export Growth (%) 30 South America 3,147 (+18%) หน วย : ล านเหร ยญ China 20 11,125 (+8%) สหร ฐฯ Africa 3,240 (+12%) 10 India ASEAN 5 2,244 (+5%) America 16,565 (+7%) 0 9,888 Export South Korea Australia Middle East (+2.5%) Japan Share -5 1,615 0 (+5%) 3, , , (%) -10 (+3%) (+2%) (-5%) Russia & CIS 578 (-16%) CLMV 7,191 (+16%) Europe 9,142 (-11%) Hong Kong 4,697 (-35%) Size of the circles is the value of exports หมายเหต ขนาดของวงกลม ค อ ม ลค าการส งออกของไทยไปย งตลาดน น 18 16

19 Thailand Risk Assessment Matrix Nature/Source of Main Threats 1. Intensification of the euro zone crisis and global double-dip 2. Underperformance of public spending 3. Domestic political tensions 4. Slower growth in China by 2 percentage points Likelihood of Severe Realization of Threat in the Next 1-3 Years (high, medium, or low) A global double-dip recession Medium/High The government has devised an ambitious investment and recovery expenditures plan Low/Medium The country remains politically divided and unrest could resume Low A tighter macroeconomic policy stance in China would affect regional growth Overall Level of Concern Expected Impact if Threat is Realized (high, medium, or low) The direct impact on Thai banks would be relatively limited Medium/High Adversely affect growth not only in the short run but also in the medium term High Political unrest would worsen the investment climate already hurt by the 2011 floods Medium Slower growth in China would have a significant knock-on effect on Thailand 5. Substantial and prolonged increase in oil prices 6. Resumption of capital inflows Source : IMF, April 2012 Medium The international boycott of Iranian oil could put upward pressure on oil prices But global outlook is weak Medium Yield differentials could attract capital away from depressed advanced economies Medium A substantial and prolonged increase in oil prices would have a significant fiscal cost Low Higher capital inflows put appreciation pressure on the currency Exchange rate appreciation could eventually hurt the export sector Large inflows imply costly sterilization 19

20 3. Thailand is now at the cross-roads Two big opportunities AEC 2015 and new investment cycle in ASEAN Government mega-infrastructure investment 20

21 3. Thailand is now at the cross-roads New investment cycle in ASEAN Percent of GDP Developing Asia ASEAN - 5 NIEs

22 3. Thailand is now at the cross-roads AEC in 2015 and new phase of business for Thai and ASEAN corporations Many Thai corporate are now investing oversea: TDI is now greater than FDI 22

23 ASEAN corporations ท มา: ค ดลอกจากเอกสารการบรรยายค ณส รศ กด ธรรมโน 23

24 3. Thailand is now at the cross-roads AEC implementation problems : some ASEAN members particularly Thailand, are still reluctant to liberalize its service and financial sector Thai companies will lose the business opportunities in ASEAN, unless Thai government liberalizes the service sector 24

25 3. Thailand is now at the cross-roads The Thai government will invest 71,000 million USD in mega infrastructure projects in the next 4-5 years Two investment questions The government has to identify and prioritize the infrastructure projects that yield the highest return Examples are logistics projects that connect Thailand with countries in Mekong Sub-region 25

26 Connectivity infrastructure projects for Thailand 26

27 3. Thailand is now at the cross-roads It also needs to revise the public private participation law and establish the new infrastructure project management institution so that the investment yields highest possible return with adequate risk management and good governance 27

28 4. Thailand at the cross-roads : major challenges 4.1 Populist policies to gain votes with increasing risks of unsustainable fiscal balance The government has been implemented extreme populist policies which will have less stimuli effect but tend to benefit the middle class and the rich more than the poor 28

29 As a consequence, Thai Public debt has increased faster than other countries

30 4. Thailand at the cross-roads : major challenges The populist policy is very popular partly because of the unequal income distribution, and most people do not pay tax 30

31 Thailand has the worst income inequality in Asia Income share of the richest and poorest 31

32 4. Thailand at the cross-roads : major challenges Policy recommendations : Thailand needs to replace populist policy with a welfare system The government has to establish the basic universal social welfare at the level that Thais can afford and increase tax base as well as introduce new property tax This will ensure that the welfare program is fiscally sustainable The most important factor in designing the welfare program is the aging problem 32

33 Thailand at the cross-roads : major challenges 4.2 Middle income trap Thailand is already in the middle income trap Korea Venezuela Mexico Thailand

34 Slower economic growth rate is an evidence of middle income trap 11-years Moving Average GDP Growth ท มา: ค านวณจากข อม ลรายได ประชาชาต ส าน กงานคณะกรรมการพ ฒนาการเศรษฐก จและส งคมแห งชาต

35 4. Thailand at the cross-roads : major challenges How do we escape from the trap? Structural adjustment toward high value added industries/services Increasing R&D Improving quality of education and labor 35

36 Increasing share of service sector with high value : reform the service sector GDP Share of Thai Economy, (%, by National Plans) 36

37 Reducing Barriers to Entry in the service sector Ease of Investment by Sector 37

38 Identifying new industries with inclusive growth strategy Share of Manufacturing Value Added (%),

39 4. Thailand at the cross-roads : major challenges 4.3 Other challenges Aging and pension problems Fiscal decentralization The monarchy transition 39

40 Thank You 40