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Oil Prices, Drought Slow Thailand's Growth, But Public Investment to Lift Economy in Next Two Years

BANGKOK, THAILAND (8 September 2005) - High oil prices are taking their toll on Thailand's economy, and the full year growth forecast has been lowered by ADB to 4% or slightly higher, from 5.6% projected earlier this year.

The new figures are contained in ADB's Asian Development Outlook 2005 Update (Update), which also says inflation has accelerated faster than expected, and trade and current account balances are likely to record deficits this year.

Thailand's GDP growth is likely to pick up in 2006 partly due to public spending programs, particularly on large infrastructure projects. The economy is forecast to expand by 5% in 2006, revised down from 5.8%, projected in ADB's Asian Development Outlook 2005 in April. While additional public spending is warranted, the Update warns that the $42 billion planned for infrastructure projects by 2009 could strain fiscal and external balances.

In addition to rising global oil prices, Thailand was hit by drought in the first half of the year, which reduced agricultural output. Tourism did not recover as quickly as expected from the tsunami of last December. Continued political unrest in three southern provinces and a new outbreak of avian flu have also taken a toll. Growth in the first half slowed to 3.9% from 6.1% in all of 2004.

Private consumption was subdued in the first half due to uncertain prospects for income growth and rising fuel prices. Private investment slowed and is expected to expand at around 10% this year as against 13% last year.

Inflation rose sharply to average 3.6% in the first seven months of 2005, pushed up by higher food prices that followed the drought and by rising fuel prices. Consumer inflation is expected to average 4% over 2005, revised up from the earlier forecast of 3.5%, and to be around 3.5% in 2006, also higher then previously forecast.

A better than expected fiscal position allowed the Government to introduce a supplementary budget and an economic stimulus package. The Government eliminated the diesel fuel subsidy in July, which will ease future budgetary pressures and moderate oil import growth.

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