Thai Economic GDP - Case Study Example

Thai Economic GDP Name: Institution: Date: Thailand Growth Pattern and its implication The economy of Thailand largely depends on exports with exports representing more than 75% of the Gross Domestic Product. After the WW2, Thailand was among the poorest countries in the world. Its economy bad stagnated for about 100 years and it suffered immensely from the effects of war. Economic growth account of Thailand was remarkable twenty years ago. From 1987 to 1995, the GDP growth rate to be registered was 8.1% in the year 1992 during the global economic slump (Chalongphob & Pranee, 1998). The amazing growth of Thailand put Thailand on the global spotlight as one of the next East Asia forces to reckon with after Singapore, Hong Kong, Taiwan and South Korea. In the mid and late 1980s appropriate integration of international and domestic events came together resulting in a miracle in Thailand. The real economic growth of the country grew from 6% per annum in 1976-85 to more than 8% in 1986-95 (Coxhead & Jiraporn, 1998). During its peak in 1988-90, the mean growth recorded was 12% per annum. Reduction in barriers to trade, low wages, and conservative economic management resulted in low inflation as well as a stable exchange rate that made Thailand to be the suitable host country for foreign investment (Jorgenson, 1988). The financial liberalization that followed occasioned a flow of foreign-currency borrowing that transformed into a torrent by mid-90s (Katharit, 2001). This facilitated an investment boom that by the early 1990s have impacted on non-traded assets like real estate and stock. The boom hiked prices of non-traded goods in a spectacular manner. The Bangkok skyline translated into a forest of cranes as property developers outsmarted each other in constructing ever-taller and prestigious apartment towers and office blocks. Employment in the construction sector significantly grew from 6% average of non-agricultural labor in 1980s to above 10% in 1995-95 (Gordon, 2000). Employment demand outpaced the growth of labour force resulting into a sharp increase in real wages, hence a decline in poverty incidence. The gains from the boom were nevertheless not shared uniformly throughout sectors. Agriculture represented a tiny portion of the investment boom and being a labor-intensive sector, it was unable to compete with wages paid in other industries (Alwyn, 1994). Agriculture began to decline as workers opted for other well-paying sectors. Output from agriculture drastically declined. The remarkable growth manifested by Thailand came to unprecedented end in the year 1997 following the Asia Financial Crisis (AFC). The devastating impact of the AFC was the country’s worst economic contraction since the Second World War (Warr, 1999). The Bank of Thailand was compelled to abandon an exchange rate that it had hitherto maintained since its establishment in 1942. Within a period of six months after being floated, the Baht lost close to half of its value (Ammar, 1996). The shock caused by the exchange rate resulted into sharp deterioration of un-hedged corporate sector balance sheet and the sector’s inability to meet its escalating debt obligation had a great impact on the financial sector resulting into increase of non-performing loans. To counter deterioration of their asset portfolio, banks resorted to tightening lending that resulted in massive credit crunch for viable firms (Vines & Peter, 2003). The economy contracted sharply since the Second World War. Several firms were declared bankrupt. The unemployment rate doubled with close to two million people being unemployment. The banking system at one point was on the verge of collapsing and the country was thrown into a state of despair. It was about after five years when Thailand economy spring back to a solid growth path (Sirilaksana, 1993). The country’s real Gross Domestic Product averaged 5.5% from 2002 to 2007. However, the economy of Thailand managed to spring back in the following years. A solid economic expansion from 2002 to 2004 returned the economy into a stable growth path (Bosworth, 2005). The mean GDP growth rate from 2000 to 2007 was 5.0%. The growth rate had the prospect hitting 6% in 2008 before the world crude oil prices went beyond the USD120 mark. Currently an annual growth rate of 6% is considered huge for Thai economy. This is the opposite case of pre-season years when 5.9% growth rate in the mid 90s was regarded as dismal (Marks, 2011). . The Gross Domestic Product (GDP) of Thailand increased with a margin of 0.93% in the 2nd quarter of 2014 from the previous quarter. Thailand mean GDP growth from 1993 to 2014 was 0.93%. It hit a record high of 11.40% in the 1st quarter of 2012 and a record low of -11.10% in the 4th quarter of 2011 (Marks, 2011). The growth of GDP in Thailand is reported by Nesdb, Thailand. Figure 1: GDP Growth Rate of Thailand, Source: CIA World Factbook. Thailand reported a trade surplus of USD 1792.92 Million by June of 2014. The Balance of Trade in Thailand had a mean of USD -138.01 Million from 1991 to 2014. The highest mark was reached in February 2009 and it recorded a value of 3553.90 USD Million and it was lowest in January 2013 recording a value of -5906.41 (Yu, Wai-Kee & Kwan, 2014). The Ministry of commerce of Thailand provides information on the balance of trade. Balance of trade in 2012 and the average trajectory Trade deficit widened further in 2012. By December, the trade balance reported a USD 2.4 Billion deficit. This was lower as compared to the USD 3.6 Billion that was reported in the same period the previous year. In spite of this improvement, the trade balance recorded a deficit of USD 18.1 Billion in the entire 2012 which was almost triple of what was registered in the previous year (USD 6.2 Billion) (Yu, Wai-Kee & Kwan, 2014). The exports went up by 13.5% per annum in December that fall behind the expansion witnessed in November and the market expectations anticipated at 21.1%. Consequently, exports increased by 3.1% in 2012. This was a drop considering 15.1% increase that was witnessed in 2011 (Marks, 2011). On the other hand, imports reduced gradually but expanded by 4.7% in December 2012 which stands for a portion of the 24.5% increase that was registered in November. Hence exports grow by 8.2% in 2012 that was below the 25.1% expansion witnessed in 2011 (Marks, 2011). Moreover, in 2012, Thailand was dethroned as the leading rice exporter in the world by Vietnam. According to reports from the Thai Rice Exporter Association as well as the Commerce Ministry, rice exports accounted were 6.9 million tons in the year 2012, which is below 10.7 million metric tons recorded in 2011. The Ministry of Commerce projects an overall growth rate ranging from 8% to 9% in 2014 (Yu, Wai-Kee & Kwan, 2014). Figure 2: Thailand Balance of Trade, Source: WWW.TRADINGECONIMICS.COM / MINISTRY OF COMMERCE, THAILAND Major import and export groups Being an export-dependent country, Thailand is highly prone to external economic shocks that lower the demand of products from Thailand hence affecting trade balance. The main exports of Thailand are vehicles, electronics, equipment and machinery. The country majorly imports fuel, machinery and electronic appliances (Krongkaew, 1994). The major trading partners of Thailand are Japan and China while the rest include Malaysia, United States, and the European Union. Figure 3: Thailand Trade Balance Chart Source: FOCUSECONOMICS Thailand key challenges and opportunities in the future for economic growth Economists have warned about slow economic growth in Thailand following political unrest. Thailand has witnessed a political standoff since the leaders disagreed over elections and the interim government. Extended political instability will have a lasting impact on the economic performance of Thailand, as well as financial stability. The contraction in manufacturing, low retail sales growth and business and consumer confidence is at the lowest level since the fatal floods that occurred in 2011 (Marks, 2011). Foreign investors are voicing concerns as the political conflict seems to be heading to the courts. Street protests have been common in the recent months. Long term investors may relocate to Vietnam and Indonesia. Foreign investors have pulled out of the Thai Stock market since the beginning of protest in early November 2013. Tourism has been affected greatly particularly in the capital where the government declared a state of emergency while anti-government protestors blocked main intersections in the city. Currently the economy shows no signs of recovery from the political turmoil being experienced in Thailand (Yu, Wai-Kee & Kwan, 2014). However, persistent sluggishness in the US, Japan and European Union region suggest that developing Asia will continue to lean towards domestic demand and engage in trade with emerging markets. References Alwyn, Y. (1994). Lessons from the East Asian NICS: A Contrarian View, European Economic Review, 38: 964-73. Ammar S. (1996). Thai agriculture: from engine of growth to sunset status, TDRI Quarterly Review, 11(4), pp.3-10. Bosworth, B. (2005). “Economic Growth in Thailand: The Macroeconomic Context,” paper prepared for a World Bank project on the investment climate, firm competitiveness, and growth in Thailand, August. Chalongphob, S. & Pranee, T. P. (1998). Productivity Growth in Thailand, 1980 to 1995. Bangkok: Thailand Development Research Institute. Coxhead, I. & Jiraporn, P. (1998). Thailand's economic boom and agricultural bust: some economic questions and policy puzzles, University of Wisconsin, Department of Agricultural and Applied Economics, Staff Paper Series No. 419. Gordon, R.J. (2000). Does the ‘New Economy’ Measure Up to the Great Inventions of the Past, Journal of Economic Perspectives, 14(4), pp. 49-74. Jorgenson, D. W. (1988). Productivity and Postwar U.S. Economic Growth, Journal of Economic Perspectives, 2: 23-42. Katharit, S. (2001). Thailand’s Total Factor Productivity, Working paper 02/2001, Bank of Thailand, Monetary Policy Group (in Thai). Krongkaew, M. (1994). Income distribution in East Asian developing countries, Asian Pacific Economic Literature 8(2), pp.58-73 Marks, D. (2011), Climate Change and Thailand: Impact and Response, Contemporary Southeast Asia, 33(2), pp. 229-258. Sirilaksana K. (1993). ‘Education Policy’, In Peter Warr (ed.), The Thai Economy in Transition, Cambridge: Cambridge University Press. Vines, D. & Peter, W. (2003). Thailand's Investment-driven Boom and Crisis, Oxford Economic Papers, 55: 440-64. Warr, P. (1999). What Happened to Thailand? The World Economy, 22: 631-50. Yu, T.F., Wai-Kee, Y. & Kwan, D.S. (2014). International Economic Development: Leading Issues and Challenges, Routledge. Read More