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Thailand Economic Monitor November 2004 Issue

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What are the consequences of the global financial crisis? ... opportunity to strengthen our competitiveness and poise for a jump in growth as ... – PowerPoint PPT presentation

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Title: Thailand Economic Monitor November 2004 Issue


1
The World Bank
Thailands Economic Outlook..Weathering the
Global Storm
Dr. Kirida Bhaopichitr Dr. Vatcharin
Sirimaneetham The World Bank 3 November 2008
2
Presentation Today
  • What are the consequences of the global financial
    crisis?
  • What are the impacts on Thailands economic
    outlook?
  • Can we turn this crisis into opportunity?

3
  • 1. What are the consequences of the global
    financial crisis?

4
Before the global financial crisis
US Debt Outstanding
5
Before the global financial crisis
Financial Leverage, end-2006
Source Phatra Securities
6
And the financial crisis begins
7
And the financial crisis begins
Source Phatra Securities
8
Consequences of the global financial crisis
  • Real GDP growth will fall across the world

Note ASEAN-5 includes Thailand, Indonesia,
Philippines, Malaysia, and Vietnam Source IMF
9
Consequences of the global financial crisis
  • Commodity and agricultural prices will fall

Source World Bank
10
Consequences of the global financial crisis
  • Global liquidity will be tight, and banks will be
    much more careful in lending
  • Monetary policy will ease around the world, but
    bank interest rates may not decline as much
  • Lower global inflation
  • Currency movements will not be as volatile, as
    many hedge funds have closed down
  • Equity markets will be down

11
  • 2. What are the impacts on Thailands economic
    outlook?

12
Immediate impact high, but less than regional
peers
Regional peers are China, Hong Kong, Indonesia,
S. Korea, Malaysia, and Philippines
Source World Bank
13
Immediate impact high, but less than regional
peers
Source SET, Bank of Thialand, and World Bank
14
Immediate impact high, but less than regional
peers
Average of currencies are those of China, Hong
Kong, Indonesia, S. Korea, Malaysia, Philippines,
and Taiwan
Source BOT and World Bank
15
In the short-run, Thailands external
vulnerability is small
  • Thailand has de-leveraged since the 1998 economic
    crisis
  • International reserves have built up to over
    US100 billion
  • Remaining foreign investment in stock market
    US3.3 billion

bn
bn
bn
times
International reserves
Source Bank of Thailand
Source Bank of Thailand
16
In the short-run, Thailands external
vulnerability is small
  • Thai banking system remains sound, but needs to
    be closely monitored
  • Investment in foreign debt instruments 13 of
    total debt-instrument holdings
  • Foreign investments lt 2 of assets
  • Foreign banks account for only 5 of the Thai
    market.
  • NPLs 3.3 of total loans in 2008Q3, compared to
    4.4 in 2007Q3
  • Loan-to-deposit ratio is around 90, so liquidity
    crunch unlikely

17
But impact will be larger next year as global
economy slows down
  • Exports of both goods and services (tourism) will
    be severely affected

Thailands key export products in key markets
Tourist arrival by nationality
18
But impact will be larger next year as global
economy slows down
  • Bank loan growth will be lower as banks will be
    more risk averse (more concerned on credit
    quality)

Deposit and Credit Growth
Source Bank of Thailand
19
But impact will be larger next year as global
economy slows down
  • Investment growth will be down

Source NESDB
20
But impact will be larger next year as global
economy slows down
  • FDI will also be slightly sluggish

Origin of FDI inflows
Source Bank of Thailand
Source Bank of Thailand
21
But impact will be larger next year as global
economy slows down
  • Capital account and current account will be lower
    next year Baht will likely continue to
    slowly depreciate

Source BOT
22
But impact will be larger next year as global
economy slows down
  • Oil prices and inflation expected to fall next
    year

Source World Bank
Source MOC and BOT
23
But impact will be larger next year as global
economy slows down
  • Household consumption will also continue to be
    dampened
  • Consumer confidence declines
  • Real wage increase small
  • Farm income growth down with lower agricultural
    prices


Farm Income Growth
Consumer confidence index
Source UTCC
Source BOT
24
Real GDP growth will be lower next year
  • Real GDP growth 4.8 this year and around 4 next
    year

25
  • 3. Can we turn this crisis into opportunity?

26
Answer
  • YES, we can but only with every ones hard
    work and united efforts

27
Turning a crisis into opportunity...
  • World economy are projected to start to recover
    from financial crisis in 2011
  • Thailand is in a competitive position as the
    impact on us is relatively less
  • We should take this opportunity to strengthen our
    competitiveness and poise for a jump in growth as
    world economy rebounds

28
It is time to improve our productivity and start
investing
Private Investment growth, and Capacity
Utilization
Source BOT and NESDB
29
It is time to improve our productivity and start
investing
  • Positive factors that are to our advantage
  • Low input prices
  • Lower inflation
  • Lower interest rate
  • Depreciated baht

30
Actions we need to take to improve our
productivity
Top Constraints to Business and
Investments (Percent of 1,043 firms in 9
manufacturing industries surveyed)
Source Thailand Productivity and Investment
Climate Study 2007 (PICS 2007), World Bank,
NESDB and Foundation of Thailand Productivity
Institute
31
Macroeconomic and policy uncertainties have
adversely affected firms investment decisions
Uncertainty of Macroeconomic and Policy Factors
Source PICS 2007
32
Firms need to protect themselves against
macroeconomic volatility
Source PICS 2007
33
through acquiring more knowledge on
hedging/coping mechanisms
Firms Reporting Not Undertaking any Measure vs.
the Lack of Knowledge on Coping Measures (Percent
of firms)
Source PICS 2007
34
(b) Skills knowledge need to be improved to
move Thailand towards a knowledge economy
  • But Thailand has not made much progress on
    this

World Banks Knowledge Economy Index
KEI is a simple average of 4 sub-indexes which
represents the 4 pillars of the knowledge
economy (1) economic incentive and
institutional regime, (2) education and training,
(3) innovation and technological adoption, and
(4) information and communications technologies
(ICT) infrastructure.
Source World Bank
35
Skills shortage and mismatch have persisted in
recent years
Number of weeks taken to fill job vacancies for
various types of workers
Whole Sample (Thailand)
Firms in the North
Source PICS 2007
36
Innovative efforts in the North are more limited
than other regions
Percent of firms that undertook these innovative
activities
Source PICS 2007
37
High costs of innovation and lack of
knowledgeable personnel largely explain low
innovative efforts
Reasons why firms did not conduct innovative
activities ( of firms)
Source PICS 2007
38
To boost innovation, firms view that governments
indirect incentives (e.g. tax deductions) and
technical assistance are important
Percent of firms viewing these government
initiatives as very important to promote
innovation
39
But existing government incentive programs for
innovation are not widely used
Share of Firms Benefiting from Government
Initiatives to Promote Innovation (Percent)
Source Thailand PICS 2004 and PICS 2007
40
(c) Improved regulations and regulatory
environment -- needed to lower costs for firms
and promote greater competition and productivity
  • Revise regulations to promote investments
    productivity
  • esp. in services sector
  • E.g. revise Foreign Business Act, pass Secured
    Transactions Act
  • Liberalize some industries esp. in services sector
  • Reduce amount and uncertainty of time on customs
    clearance, tax refunds, and inspections
  • Integrate processes into 1-stop center minimize
    face-to-face interactions
  • Streamline bureaucratic procedures, improve
    governance, and reduce corruption

41
Multiple regulatory procedures and uncertainty in
time taken were voiced by firms as burdensome to
business and investment
Very Severe or Severe Regulatory Obstacles to
Business and Investment ( of firms)
Average Days to Obtain Permits to Start
Production and Deviations
Figures in ( ) are standard deviations from the
mean
Source PICS 2007
42
(d) Public infrastructure investments are needed
to reduce logistics and production costs
Share of transport and logistics cost in total
cost of delivering finished goods to customers
Objective Measures of Thailand's Infrastructure
Services
Source PICS 2007
43
Thailands investment climate is middling
compared to other countries
Objective Measures of Infrastructure Services
Objective Measures of Bureaucratic Process
Source Thailand PICS 2007 and Global PICS
44
Perceptions become reality
Perceptions of worsened investment climate
negatively affect investment decisions
Perception of Investment Climate Indicators as
Major or Severe Obstacles to Doing
Business (Percent of Firms)
Business Sentiment Index
Source PICS 2007
Source Bank of Thailand
45
Summary Actions that can improve investment
climate
  • Improve business sentiments
  • Certainty and clarity in policies
  • Certainty in public infrastructure investment
    plans
  • Announcements of productivity improvements
    assistance to most needed industries
  • More PR on actions taken and on Thailands
    investment climate
  • Facilitate the use of hedging instruments and
    knowledge to firms
  • Streamlining bureaucratic procedures and time
  • Introducing ICT to reduce bureaucratic process
    and time

46
Summary Actions that can improve investment
climate
  • Productivity improvements assistance to most
    needed industries
  • Gradual liberalization of services industries
  • Pass laws and regulations that promote investment
    e.g. Secured Transactions Act, Revise Foreign
    Business Act
  • Public infrastructure investments in most needed
    areas
  • Putting Thailand on the path to a knowledge
    economy
  • Improve quality of higher education
  • Foster university - public research institute -
    industry linkages for innovation
  • Raise standards and enrolment of vocational
    training

47
Summary
  • We can turn this crisis into an opportunity for
    Thailand
  • Thailand has a high growth potential with new
    investments and productivity growth
  • We all need to work together to unleash
    Thailands potential by improving Thailands
    investment climate

48
Thank You
For more information on World Bank work and
reportsGlobal www.worldbank.orgThailand
www.worldbank.or.th
49
  • BACK-UP SLIDES

50
PICS 2007 surveyed 40 producers in the North,
mostly food processing and garments firms
Regional distribution of firms in PICS 2007 ()
Industrial composition of firms in the North ()
Unit Percent
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