BEHIND THE NUMBERS
When the official figure for gross domestic product (GDP) was announced on Feb 18, many people probably shared our reaction: awestruck. The Thai economy in the fourth quarter of 2012 expanded dramatically by 18.9% year-on-year compared with a 3.1% increase in the previous quarter.
For what it's worth, the announcement may have forced the central bank's Monetary Policy Committee to hold its policy rate at 2.75% on Feb 20 in the face of government pressure to reduce it.
The 18.9% growth rate represented a really strong close to the year after the flood crisis of late 2011. In fact, the figure was the highest since the National Social and Economic Development Board (NESDB) started compiling quarterly GDP 20 years ago. In a Bloomberg survey of 14 economists, the mean estimate was 15%, with the highest forecast of 18.3%, the only one in excess of 18%.
Yes, we hear you say, the fourth quarter of 2011 was an exceptionally low base, so how meaningful was the 2012 figure? Well, it beat all previous low-base periods, from the 1997 Asian crisis to the 2008 sub-prime crash.
Based on our calculation, the output gap, as measured by a percentage deviation of actual GDP from its long-term trend or potential GDP, stood at well above 4% in last year's fourth quarter, up from 1.75% in the third quarter and 1% in the second quarter. The Thai economy really is heating up, and there is more to it than a low base effect caused by the severe floods.
Thai GDP for all of 2012 grew by 6.4%, one of the fastest paces among Asian economies. While Europe was in a public debt mess, US unemployment rate remained stubbornly high and China narrowly escaped a hard landing, so how did Thailand fare so well when exports account for more than two-thirds of its total output?
While investments, both public and private, played an important part in the post-flood recovery, 2012 was a year of consumption for Thailand.
Household consumption expenditure grew by 6.6% from 1.3% in 2011; in the fourth quarter it rose by 12.2% year-on-year, the highest ever.
This surely had something to do with the nationwide increase in the daily minimum wage to 300 baht and higher farm incomes from rice pledging but a great deal more with the government's major stimulus measure, namely the first-time car buyer tax rebate.
During the last three months of 2012, expenditures on durable goods including motor vehicles rose by 95% year-on-year. Sales of passenger cars alone grew by 278% _ which also explained why traffic problems in Bangkok got much worse.
The Thai economy also received an extra push from foreign tourists _ we can think of them as another set of consumers. While merchandise exports barely improved towards the end of 2012, service receipts grew spectacularly, principally from a surge in foreign visitors, particularly from East and Southeast Asia. Tourism revenue jumped 24% in 2012, another big leap after increasing 31% in 2011, and now generates 8.5% of GDP.
Putting together private consumption and exports of services, they accounted for 68% of GDP last year. No wonder that poor performance of goods exports last year did not put a dent in Thai economic growth as conventional wisdom would usually dictate.
But will the momentum of such strong domestic and foreign spending continue in 2013? This is a tricky question, and forecasters are divided into two camps.
The naysayers revised down their GDP forecasts for 2013 soon after the NESDB's announcement. They point to a still-fragile export outlook and a lack of positive surprises such as last year's first-time car buyer scheme against the very high base of 2012. This may be true of past experience with high base years, especially if there was no other upside surprise.
The other camp takes the surprise GDP expansion as a signal of even greater forward momentum and is revising up its GDP forecasts for 2013.
First, the first-time car buyer scheme is not over. Applications for the tax rebates closed last Dec 31, but 56% of all first-car deliveries will happen in 2013. In other words, the historical growth rates we saw in car production and sales last year were not even half the cars from the scheme.
In January, roughly 116,000 units were delivered domestically for the scheme, accounting for 86% of all domestic car sales that month. This leaves 634,000 first cars to be produced and delivered this year. Assuming the same rate of delivery, this will keep dealers busy well into July.
On the foreign spending front, tourist arrivals from within Asia increased significantly last year, while tourists from older markets did not exactly slow down. Arrivals from China expanded 62.1% and from Asean 11.8%, while arrivals from Europe also increased by 10.1%. This year we expect strong growth in Asean and improved expansion in China. Euro-zone economies are expected to stabilise. All in all, things do not look half bad for continual growth in tourism for 2013.
The final boost to GDP growth will come from the recovery of Thailand's usual growth engine _ merchandise exports. Although consumption may slow in the second half of this year once the steam from the first-time car buyer scheme runs out, we can expect export recovery to gain a stronger footing about the same time, given signs from the Chinese and the US economic recovery.
In sum, the Thai economy in 2013 should have no trouble finding its sources of growth.
It will still depend more on consumption in the first half, while export growth will kick in in the second half, with public investment in the background to fill any gaps between domestic and external demand.
The question now is whether we are growing too fast, which we will explore in a future column.
TMB Analytics is the economic analysis unit of TMB Bank. Behind the Numbers is co-authored by Benjarong Suwankiri and Warapong Wongwachara. They can be reached at TMBAnalytics@tmbbank.com
About the author
Writer: TMB Analytics