Countries and Regions

	Table of Contents
p. 4 of 17 BACK | NEXT Executive Summary Map I. Recent Economic Developments A. Growth, Employment, Saving, and Investment B. Fiscal Developments C. Monetary Development and Prices D. External Trade and Balance of Payments II. Short and Medium-Term Economic Prospects and Policy Issues III. Selected Policy Issues

Country Economic Review: Thailand : I. Recent Economic Developments

---

I. Recent Economic Developments

A. Growth, Employment, Saving, and Investment

1. Aggregate Growth

1. In 2000, Thailand’s economy continued to recover from the currency and financial crisis that erupted in 1997. Real gross domestic product (GDP) grew at 5.8 percent year-on-year in the first half, but slowed to 3.0 percent in the second half of the year. For the year as a whole, real GDP grew by 4.4 percent. Faster growth in the first half of the year was propelled mainly by strong export performance, the lagged effects of an earlier fiscal stimulus, and accommodative monetary conditions. Slower growth in the second half was mainly attributable to less favorable external demand conditions, and political uncertainty ahead of the national election held in January 2001. However, despite two years of growth, recovery was incomplete. Only some of the income lost as a result of the crisis was restored. Per capita incomes (measured in local constant prices) in 2000 were some 8 percent lower than their 1996 level.

2. Sectoral Growth

2. On the demand side, exports continued to drive economic recovery (Table 1). Exports grew at 17.1 percent in 2000, up from 9.9 percent in 1999. The growth of government consumption expenditure also accelerated sharply to 6.5 percent in 2000, up from 0.9 percent in 1999, reflecting the fiscal stimulus measures. Private consumption increased by 4.3 percent in 2000, following a growth of 4 percent in 1999 and two years of contraction in 1997 and 1998. Consumer confidence improved in broad line with the growth of the economy. After three years of contraction, private investment grew by 14.2 percent in 2000, following a record contraction of 53 percent in 1998. As such, investment growth was from a very low base and its contribution to overall growth was modest. The growth was mainly due to government measures to encourage private investment, including reduced taxes and tariffs, and measures aimed at fostering recovery of the real estate sector. Compared with their precrisis levels of 1996, exports had more than fully recovered by the end of 2000. However, consumption and especially investment lagged.

3. On the supply side, the industry sector (accounting for about 44 percent of GDP) continued to support growth. But the pace of expansion slowed to 5.1 percent in 2000, compared with 9.5 percent in 1999 (Figure 1 and Appendix Table A3). Slower growth was mainly confined to manufacturing, and was partly due to changing regulations affecting the liquor industry, which had resulted in fast growth in 1999 ahead of scheduled changes in regulations. Within manufacturing, the output of domestic-oriented activities (activities whose share of exports in output is less than 30 percent), contracted by 7.1 percent, suggesting continued weakness of domestic demand.

4. The manufacturing production index, which covers 62.4 percent of the manufacturing sector, increased by only 3.2 percent in 2000 (including liquor), as compared with 12.5 percent in 1999. Excluding liquor production (which accounts for about 11 percent of the index), the manufacturing production index increased by 10.9 percent in 2000. However, the industrial capacity utilization rate averaged 56 percent in 2000, a slight decrease from 60 percent in 1999. It was still below the average of about 72 percent before the crisis in 1996, suggesting the existence of idle capacity in the manufacturing sector (Figure 2, Appendix Table A5).

5. Services sector output (accounting for about 46 percent of GDP) picked up in 2000 and supported the growth. Services output grew by 4.1 percent in 2000, ending three years of contraction caused by the crisis. Within services, all subsectors registered growth with the exception of financial intermediation services (including the banking sector), which contracted by 5.6 percent in 2000. However, this compares favorably with a contraction of 39 percent in 1999. The hotel business, growing by 11.5 percent, led the hotel and restaurant sector to 6 percent growth following an 11.0 percent increase in the number of tourists in 2000.

6. In agriculture (accounting for about 10 percent of GDP), real output grew by 2.7 percent in 2000, the same growth rate in 1999. Agriculture growth was adversely affected by falling prices for farm output. In particular, world farm prices of major Thai products, such as rice and tapioca, fell during the year. Fishery output expanded by a marginal 0.2 percent, an improvement nevertheless from a drop of 3.9 percent in 1999. Crop production slightly declined 2000, caused by floods in some areas.

3. Employment and Poverty

7. Based on the quarterly labor force surveys (Table 2) conducted by the National Statistical Office in 2000, the higher unemployment rates in 1998 and 1999 caused by the crisis fell slightly as a consequence of economic recovery. The average unemployment rate of the total labor force, excluding seasonally inactive labor, fell to 3.6 percent in 2000, from 4.2 percent in 1999. However, this rate is still much higher than the 1.5 percent in 1996 before the crisis. The total employment rate increased slightly at 2 percent year-on-year. Employment in agriculture rose only by 0.02 percent and nonagriculture employment increased by 3.6 percent year-on-year, reflecting in part a long-term structural shift in production from agriculture to industry. Meanwhile, underemployment defined as employees working less than 35 hours a week and looking for extra work, declined by 13 percent in 2000.

8. Following an acceleration of inflation, real wage growth slowed to 2 percent in 2000, from 3.1 percent in 1999.¹ Meanwhile, effective at the beginning of 2001, the Wage Committee in the Ministry of Labor and Social Welfare increased the minimum wage rate by B3, ranging from B130 to B162 per day in different areas.

9. Thailand has made substantial progress in reducing poverty over the last two decades. However, the crisis that broke in 1997 interrupted this momentum and had a severe impact on the poor. By 1999, the incidence of poverty in Thailand had returned to its 1994 level. Poverty incidence increased from 11.4 percent in 1996 to 15.9 percent in 1999, pushing about 3 million people below the poverty line during 1996-1999.² Rural poverty incidence increased dramatically from 14.9 percent in 1996 to 21.5 percent in 1999, partly because some laid-off workers returned to villages and remittances to villagers substantially declined. Also, the low price of agriculture products after 1998 set the agriculture sector back. In contrast, urban poverty incidence remained unchanged in the wake of the crisis and held steady at 3 percent during 1996-1999.

4. Savings and Investment

10. During 1992-1996, the difference between the saving and investment ratios created a resource gap of around 6.4 percent of GDP. However, the investment rate slumped in wake of the crisis, from 42 percent in 1996 to about 23 percent in 2000. By contrast, the saving rate fell only marginally and remained about 30 percent during 1996-2000. As a consequence, Thailand has had a reserve surplus since 1998. The savings–investment deficit of 6.5 percent of GDP before the crisis in 1996 switched dramatically to a surplus of 7.5 percent of GDP in 2000, reflecting the adjustments compelled by net capital outflows (Table 3 and Figure 3). In 2000, Thailand saved 30 percent of its GDP and invested about 23 percent.

_______________________________________

Back I. Recent Economic Developments	Next B. Fiscal Developments