GDP seen to rise between 4.5-5.5 pct in ’13
Thailand
grew far more than expected in the fourth quarter of last year. Analysts were expecting the Gross Domestic Product (GDP) to grow by 15.4% year-onyear (YoY), but the economy instead expanded 18.9% YoY in the last quarter. The strong rebound, from 3.1% YoY in the third quarter, is almost entirely attributed to a low base year before, when the Southeast Asian country was devastated by the worst floods in 70 years during the final months of 2011. The economy is still undergoing a recovery. On a quarterly basis (QoQ), Thailand grew 3.6%, well above analysts’ expectations of 0.2% QoQ and previous quarter’s 1.5% QoQ.
For the whole year of 2012, GDP grew 6.4%. Not a single analyst expected the rate to be this high, with the median forecast at 5.5% and the highest forecaster expecting 6.3%. As the graph shows, the expansion of the economy was led by the industrial sec- tor which contributed around three quarters of the total growth. The country did well in spite of the slow recovery of the global economy because production was aimed at the domestic sector, a signal that the economy is still in full post-flood recovery.
Real GDP is a measure of the economic output or of the size of the economy — adjusted for inflation or deflation. It is the sum of the values of all final goods and services produced by that country or region over a given time period. The values depend on the quantities (volume) of the goods produced and their prices. Real GDP is a measure that holds prices constant by using a given year’s value (the base date) for all items and services.
Then these values are used to calculate GDP for years prior to the base year and subsequent years. GDP can be measured in several ways, and the Office of the National Economic and Social Development Board of Thailand, the body responsible for national accounts data, publishes GDP by expenditure and sector output. The graph illustrates the breakdown of GDP by sector, which consists of agriculture (not included here due to its insignificant contribution to growth), industry and services. Industry is the largest component in Thailand, with the services sector close behind.
From the expenditure standpoint, private consumption is a strong driver of growth in the domestic-oriented nation, but exports have traditionally contributed more to GDP growth.
Both domestic and external demand contributed to the higher than expected rise in GDP growth. Exports have been resilient, accelerating to more than 3% QoQ, despite the Thai Baht’s appreciation, which hurt the country’s competitiveness. However, the higher purchasing power of the currency has facilitated the expansion of the domestic sector by strengthening the economy’s ability to import (which grew 5.2% QoQ), and by containing imported inflation.
Domestically, growth came primarily from private consumption, while investments and government spending contracted sequentially. Many determinants contributed to the rise in private consumption, but among the most important ones were the increase of wages, government subsidies on first-time car users and a post-flood recovery requiring the reconstruction and restoration of many areas in the country.
Thailand’s economy will be resilient in 2013, even without a global recovery. The government expects GDP to rise between 4.5% and 5.5%. Corporates will perform well for two reasons. First, the currency appreciation is bringing costs down. Second, rising minimum wages are increasing disposable income faster than headline inflation.
Keeping inflation on check will be the main challenge this year. Prices are already growing at 3.4% YoY. But we are optimistic: the appreciating currency and lower global demand for commodities will drive prices down, offsetting wage increases and domestic demand-pulled inflation. However, we don’t expect the central bank to considerably ease its monetary policy and hence don’t expect more than two 25-basis-point rate cuts this year. Overall, our outlook for Thailand is positive, both for the short and medium term. Thailand is one of the leaders in the transformation process that will occur all across Asia: from an export oriented to a domestic demand-driven economy.