Sunday, June 10, 2012

How Thailand is Recovering

In the first quarter, the economy of Thailand has expanded unexpectedly despite last year's floods. Factories have resumed production, domestic consumption has revived, and the Baht rose.

According to the National Economic and Social Development Board, there has been an increase of 0.3 percent on the Gross Domestic Product in the three months through March from the previous year, after a revised contract of 8.9 percent in the prior quarter. In a Bloomberg News Survey, the median of 18 approximations was for a decline of 0.5 percent

Governor Prasarn Trairatvorakul of the Bank of Thailand said that this month, further rate cuts will be refrained by the monetary authority because recovery pace is exceeding its expectations, even though there are risks to growth such as higher oil prices and Europe's debt  woes. Despite the country’s worst floods in almost 70 years, causing shut plants and disrupted production, manufacturers have been boosting output during recovery. Honda Motor Co. says that on March 31, its factory in Ayutthaya province will run at full capacity to cater to the rising demand.

Sacha Tihanyi, A senior currency strategist in Hong Kong at Scotiabank(a unit of Bank of Nova Scotia) said that: “The post-flood rebound is progressing nicely, with a stronger-than-expected rebound likely to keep Bank of Thailand focused on future inflation risk,”... “We are going to see recovery ramp up. However, it’s not going to be at such a massive rate of growth.”

Stimulus of Exit

For a second meeting on May 2, the Central Bank left borrowing costs unchanged, who later raised the growth forecast to 6 percent for 2012. This month, the International Monetary Fund said that when economic recovery strengthens, Thailand should be prepared to exit fiscal stimulus and raise interest rates

Risks are faced by Asian nations arising from international problems such as Greece's inability to form a new government after an inconclusive election that could worsen the debt crisis in Europe, not to mention the hurdles from the growth slowdown in China and an the unstable U.S. recovery.

The decline in European demand is particularly troubling for countries such as Thailand and Singapore, since their product exports make up about half or more of the gross domestic product.

In a media briefing in Bangkok, Arkhom Termpittayapaisith, secretary-general of the National Economic & Social Development Board, said that in the second quarter, Capacity utilization and exports will pick up while more companies recover from the floods.

According to him: “Auto and electronics sector will return to full capacity and that will boost growth in the second quarter”. In addition, he said that “Growth may be 4 percent to 5 percent and will pick up speed in the third and fourth quarter,” saying that the agency is maintaining a 5.5 percent to 6.5 percent growth forecast for this year.

Recovery is 'Still Mild'

He said that the recovery is “still mild”, adding that the central bank must make sure that the monetary policy “remains supportive” to the economy, by way of cutting or holding interest rates. On May 23, Malaysia will report that its GDP growth for the first quarter has slowed to to 4.6 per cent as compared to the previous year, according to the Bloomberg News Survey's median forecast, as compared with the 5.2 percent expansion in the previous three months.

 Last week, Thai Finance Minister Kittiratt Na-Ranong said that the country could achieve an export growth of 15 percent this year. There has also been an 11 percent rise in car production, with a record of 190,935 units in March from the previous year, with a jump of 19.3 percent on sales, the Federation of Thai Industries said last month.

In April, inflation slowed to its lowest for more than two years on easing food prices and state subsidies, said by the Commerce Ministry last May 1. Even though exports and industrial output fell in March, business acumen and consumer confidence has bounced back.

Under Control

According to Sukhy Ubhi, an economist at Capital Economics Ltd. in London: “Manufacturing output, tourism and private-sector spending look to have risen strongly in the first quarter, reversing their slumps late last year,” “With inflation under control for now, we think the BoT is likely to stay on hold at least until the third quarter.”

Higher wages & oil, and a faster-than-expected economic recovery are causes why inflation risks remain, according to the central bank. Prime Minister Yingluck Shinawatra expressed her worry about an increase in the cost of living.

Chief Executive Officer Richard Han said in a Bloomberg Television interview today that Factories of Hana Microelectronics Pcl, the largest semiconductor packager of Thailand, are operating at between 50 percent and 55 percent of their production level from before last year’s floods.

He said: “We didn’t have support in terms of relief and tax”, “A lot of SMEs are also struggling because of the 300-baht minimum wage increase,”. In April, the pay rose to 300 baht ($9.6) per day in Bangkok as well as in six other provinces. As with the rest of the country, it will climb to an average of 40 percent.

The economy in Thailand is the biggest in Southeast Asia following Indonesia. From three months earlier, it grew to 11 percent compared with the previous period's revised 10.8 contraction. The Bloomberg News survey's median forecast was for a gain of 10 percent.

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