Economic growth slowed down to 4.5 percent in 2005 relative to 6.1 percent in 2004. The tsunami, the drought, the unrest in the South and a large rise in oil prices took their toll on the confidence of consumers and investors last year. Tourism receipts grew by only 0.5 percent compared to almost 30 percent a year earlier. Domestic retail prices of petrol and diesel rose more than 30 percent last year as increases in world oil prices were judiciously passed through to the consumers. GDP growth is projected to be around 5 percent in 2006. The terms of trade is expected to be more favorable this year, and world demand for key Thai exports (integrated circuits, computers, and hard disk drive) is expected to be buoyant. Import growth is likely to slow down, in line with slower growth in investment. Total domestic demand (household consumption and investment), will decelerate further relative to last year, as real interest rates rise and continued political uncertainty will delay public investments and dampen consumer and investor confidence. |
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Headline inflation rose to 4.5 percent in 2005 compared to 2 percent in 2004. This was largely due to jump in retail prices of oil and the rise in food prices due to drought. Core inflation has also risen. However, headline inflation is expected to ease to slightly less than 4.0 percent in 2006 provided monetary policy remains tight; the Bank of Thailand has been raising interest rates and further rises are likely. The fiscal situation remains strong. The Government is running and will continue to run a balanced budget. Revenue collection is buoyant. Public debt as a share of GDP remains below 48 percent of GDP and is expected to continue declining over the next few years.  Thailand’s external situation remains robust At the end of 2005, external reserves stood at US$52 billion (3.1 times short-term external debt), and total external debt has fallen to around 29 percent of GDP as of November 2005. The current account turned to a deficit of 2.2 percent of GDP in 2005, but this deficit is expected to fall in 2006. This is because import-growth will decline in line with declining investment growth, while the balance on services is likely to show a larger surplus than last year, given the ongoing recovery in tourist receipts. Total investment growth slowed in 2005, and is expected to slow further this year. The slow down was due to lower-then-expected pace of implementation of mega projects and a deceleration of private investment growth. Only 2.4 percent of the US$46 billion five-year (2005-09) public infrastructure mega-projects program was disbursed (see more below). Private investment grew at 11 percent in 2005, slower than in 2004, though foreign direct investment grew strongly reaching US$9.2 billion i.e. a growth of 21 percent relative to 2004. Private investment is projected to grow by 9 percent this year, given higher oil prices, rising interest rates, appreciating real exchange rates and more recently more political uncertainty. The Government’s plan to spend US$46 billion on large infrastructure projects in the next 4 years will likely take longer to be fully implemented. This program covers urban mass rapid transit, highways, power, low-income housing, water systems, education and health sectors and is expected to be financed by external borrowing to the extent of 17.5 percent (or US$7.9 billion) and significant private sector participation. The expected disbursement is likely to be about half the original plan for mega-projects. Export earnings growth slowed last year but is expected to pick up this year as external demand for Thai exports becomes more favorable. Export volume last year has grown at half the rate in 2004 and only robust export prices (increasing by 10 percent in the first half), have kept export value up by 15 percent. This is a slowdown compared to more than 20 percent growth in the previous years. The dampened volume growth was in line with the downward trend of the global electronics demand in the first half of last year. This had limited the growth of integrated circuit exports, Thailand’s key export. Tourism receipts were depressed following the tsunami in December 2004, and the southern unrest has not helped either. Exports volume this year should register higher growth than last year’s as the global demand for Thailand’s key products are on the uptrend. However, export prices will not be as robust as last year, hence, total export earnings are expected accelerate only slightly higher than last year’s rate. Back to top
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