Thailand Remains Attractive Investment Destination

 

Thailand remains an attractive investment destination. We won’t expect lot of businesses to relocate,” Annette Dixon, the World Bank’s country director, at a press conference yesterday.

The government should give priority to the flood recovery effort over populist policies such as raising the minimum wage and subsidising rice farmers, she added.

While the Bank of Thailand has been urged to cut the policy rate to boost the economy, given the high volatility of the global economy, it “should be extremely prudent”, Dixon said.

Ekaterina Vostroknutova, senior economist for East Asia and the Pacific region, said developing East Asia countries were now more concerned about growth than inflation and they had not yet made a move on policy rates. “Central banks in Asia are waiting to see things unfold,” she said.

Thailand should increase both public and private investment from the current 20 per cent of GDP to 30 per cent, she added.

The bank’s economists said the slower growth in Thailand this year was due to the global economic slowdown, the earthquake in Japan and the flood here.

GDP is expected to expand only 2.4 per cent this year, slower than 3.6 per cent in pre-flood forecasting. The flood’s impact is expected to slash GDP growth by 1.2 percentage points. However, growth is expected to be higher next year at 4 per cent, up from 3.7 per cent predicted previously, as reconstruction would lead to more economic activity.

The Word Bank estimated that the private and public sectors will need Bt755 billion (S$31.4 bil) to rehabilitate for a stronger and more resilient economy.

The government needs to invest Bt235 billion over the 24 months or so, largely in water-resource management. The private sector will need to invest much more at Bt520.1 billion, said Kirida Bhaopichitr, the World Bank’s senior economist for Thailand.

The bank’s report on “2554 Thailand Floods: Rapid Assessment for Resilient Recovery and Reconstruction Planning”, which draws on a survey conducted from November 725, suggests that damages and losses will total Bt1.36 trillion.

The private sector has suffered the most at Bt1.28 trillion, or 94 per cent of the total, while the public sector bears 6 per cent. The floods have disrupted the supply chains of many industries, particularly automobile and electronics, she said.

The flood’s impact will turn the current account from a surplus to a deficit next year. The current-account surplus for this year will fall to US$2.6 billion from the $11.2billion pre-flood forecast.

“The bank estimates the country next year to run a current-account deficit of $2.5 billion, or 0.6 per cent of gross domestic product, because of more imports for reconstruction,” she said.

However, public-debt law permits the government to borrow from either the domestic or overseas market, so the government need not issue an emergency decree. The private sector will also be able to borrow from the domestic market, which has adequate liquidity, Kirida said.

The Finance Ministry said economic indicators suggest the economy started to contract last month due to the flooding.

Value-added-tax collections expanded only 11.3 per cent year on year last month, down from 13.3 per cent in the previous month, said Somchai Sujjapongse, director-general of the Fiscal Policy office.

Car sales plunged by 38.8 per cent compared with an expansion of 29.6 per cent in the month before. Sales of commercial vehicles also plummeted by 41.8 per cent, suggesting a contraction in private investment.

Preliminary data show that the manufacturing production index tanked by 34.5 per cent, while exports edged up only 0.3 per cent year on year.