How resilient is the Thai economy?By Bangkok Pundit Nov 16, 2012 10:00AM UTC
While there is a weak world economy meaning export growth is likely to be just under 5%, which will hit GDP growth in 2012, domestic demand is keeping the economy chugging along with reasonable level of growth.
In Thailand, the government’s drive to boost investment and growth after massive flooding decimated industry last year has helped to make it a favourite of stock investors.
Thailand’s economy shrank 10.7 per cent in the last quarter of 2011 after the country’s worst flooding in more than half a century disrupted operations at more than 1,000 factories, bringing the country’s key automotive and computer parts industries close to a halt.
But ever-resilient Thailand is bouncing back. The Asian Development Bank predicts Southeast Asia’s second-biggest economy will grow 5.2 per cent this year and 5 per cent in 2013.
Investors view positively measures Thailand has taken to increase domestic consumption, such as raising the daily minimum wage to 300 baht ($10) and offering rebates to first-time car buyers.
“It’s enabled households to have more disposable income and spend more,” said Frederick Gibson, associate economist at Moody’s Analytics. “I think the market has taken that as a positive sign, that households will have the ability to spend and that hopefully will have a positive impact on growth.”
Thailand’s public debt load as a per cent of the economy — relatively low at 40 per cent — means the government has the leeway to undertake expansionary fiscal policies, such as corporate tax cuts and other measures, said economist Eugene Leow of DBS Bank Ltd. in Singapore.
The country also has mapped out major infrastructure projects, including flood prevention measures, in the next few years.
BP: The floods last year caused concern that some companies would start to move out of Thailand to diversify their risk, but floods are not the only reason for companies to diversify their risk and some companies are moving to Thailand.
Her government, though criticised for its handling of the floods, took extraordinary measures to help companies, particularly the Japanese manufacturers that dominate Thai industry.
Far from leaving Thailand, as the government had feared, Japanese companies appear to be increasing investments, due to the strong yen and, in some cases, to relocate production from China amid a growing anti-Japan backlash over a maritime dispute
Asahi Shimbun in November also mentions the role of tax breaks for first car purchases:
Japanese automakers are increasing production in Thailand as the country has rebounded from devastating floods last year and heightened domestic demand with a tax break on car purchases.
New car sales in Thailand from January through September rose 49.1 percent from the same period last year to 1,000,577 units.
Isuzu Motors Ltd. on Oct. 29 started operations at a new plant in Chachoengsao province. The 18-billion-yen ($225-million) plant has an annual production capacity of 100,000 units, enabling the company to produce 400,000 pickup trucks a year in Thailand.
Asahi Shimbun in November:
Nissan Motor Co. said Nov. 2 it plans to invest $358 million to build a second assembly plant in Thailand that will create 2,000 new jobs and start production in August 2014.
With an initial annual production capacity of 75,000 units, the plant eventually plans to double that output.
Reuters on the reason for Nissan’s expansion:
Japan’s Nikkei business daily reported in October that Nissan wanted to open a second plant in Thailand to diversify production after anti-Japanese demonstrations in China.
However, Saikawa denied that the recent tension had anything to do with its investment choice. Rather, he said, the investment in Thailand was aimed at boosting Nissan’s growth in the 10-country Association of Southeast Asian Nations (ASEAN).
BP: Mitsubishi is also expanding operations although the amount of new investment is limited. BP has seen predictions for growth in 2012 to be between 4.6% to 5.7%. If GDP growth can exceed 5% this year and next year then it may be able to weather the inevitable corruptions scandals in the future.*
*See Chang Noi’s classic column on the tolerance level of corruption 1996. See the excerpts below:
The Chang Noi “corruption curve” plots the relationship between a government’s rate of graft and the length of time it stays in office. The horizontal axis plots time. The vertical axis plots the corruption rate. This rate is not an exact measure in terms of millions of baht or percentages of GDP. Rather it plots perception: how corrupt people believe the government to be. The curve illustrates a simple contemporary truth: the more corrupt a government is, the shorter it lasts.
This does not mean that the Chatichai and Chuan governments had the same corruption rates. As Diagram 3 shows, the curve shifts depending on the economic growth rate. If the economy is growing very fast (as during the Chatichai premiership), the curve shifts outwards. The politicians can get away with more. At a given corruption rate, they can stay in office longer.
BP: The link has the graphs….