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Old Thursday, March 25, 2010
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Post World Economies

World economies


Thailand

Thailand’s $260 billion economy, hit by a collapse in exports in late 2008 and early last year, grew 1.3 per cent in the third quarter of 2009 from the previous quarter after growth of 2.2 per cent in the second, emerging from its first recession in 11 years. The projected economic growth this year would follow an estimated contraction of 2.7 per cent in 2009, the weakest performance since the 1998 Asian financial crisis. The authorities have adopted a deficit budget and fiscal measures together with aggressive interest rate cuts to help revive Southeast Asia’s second-largest economy.

Although the Thai economy is expected to continue growing with the support of global economic recovery, the Bank of Thailand predicted that the political uncertainties in the country remain a key risk factor. The economy in January continued to expand, driven by a surge in exports by 31.4 per cent with a total value of $13.63 billion and by improved consumption as evidenced by a rise in the consumer confidence index by 4.7 per cent and the private investment index for the eighth consecutive month by 5.2 per cent. The 2010 GDP is seen growing 3.3-5.3 per cent.

Thailand’s annual consumer prices rose faster than expected in February, but core inflation was still benign, suggesting any credit tightening by the central bank and normalising of rates could be months away. Consumer prices in February rose 3.7 per cent from a year earlier, slightly above market forecasts for a rise of 3.5 compared with 4.1 per cent in January, which was the highest rise since September 2008. The 2010 CPI is seen up 3-5 against 3.5-5.5 per cent projected previously. Headline inflation in Southeast Asia’s second-largest economy turned positive in November after nine months of deflation.

Meanwhile, Thailand’s government plans to propose a 2.07 trillion baht ($62.7 billion) fiscal budget for the year to September 2011, up from 1.70 trillion a year earlier. The 2010/11 budget plan includes a 420 billion baht fiscal deficit, up from around 350 billion baht estimated for the current year. Analysts estimate that, with an additional 200 billion baht of off-budget stimulus spending being made by the government to support the economic recovery, the actual 2009/10 government budget deficit may rise to around 440 billion. At least another 150 billion baht in stimulus spending outside the fiscal framework is allocated for 2010/11.

The increased budget deficit target raised concern among some economists, who said it could aggravate the country’s debt burden and undermine its credit ratings. The Bangkok’s National Institute of Development Administration said the 2010/11 fiscal deficit should be capped at 350 billion baht. Thailand’s government has no immediate plans to reverse its stimulus program adopted since early 2009 despite growing signs of economic recovery in the past few months. The government sees its stimulus spending, both on big infrastructure projects and rural development, as essential for the economy while the current global recovery remained fragile.

Hong Kong

The Hong Kong economy returned to a positive 2.6 per cent year-on-year growth in the final quarter of 2009. For 2009 as a whole, the local economy contracted 2.7%, the worst annual performance since 1998 when the local economy was hit by the Asian financial crisis. The financial secretary projected a growth of 4-5 per cent for 2010 which may be too optimistic, as it takes time for global demand to return to its peak levels. While domestic demand has been taking the lead in the recovery, exports are also gathering momentum. Amidst the severe plunge in global trade, Hong Kong’s goods exports fell by 12.6 per cent in real terms in 2009, the biggest annual drop on record. For investment, gross domestic fixed capital formation dipped by 2.2 per cent for the whole year. In 2009, private consumption expenditure dipped by only 0.3 per cent and actually reverted to a year-on-year increase in the latter half of the year. Business sentiment also improved distinctly during the latter half of the year, with overall investment recording double-digit growth in the fourth quarter.

The outlook for 2010 is cautiously optimistic. GDP is forecast to grow by 4-5 per cent in 2010, with headline and underlying consumer price inflation forecast at 2.3 and 1.5 per cent respectively. The economy continued to recover on entering 2010. Merchandise exports rose notably further in January by 18.4 in value terms over a year earlier, while headline inflation remained modest at one per cent In the face of economic uncertainty, the officials are cautiously optimistic about the territory’s economic prospects for 2010.

Both local and external price pressures were virtually absent during most of 2009 in the midst of the economic downturn and global-wide recession. After experiencing a brief period of mild deflation, downward pressures on consumer prices abated notably near the end of 2009. The CPI is forecast to increase by 1.5 per cent in 2010 as a whole. The headline Composite CPI is forecast to be slightly higher in 2010 at 2.3 per cent.

In the 2010-11 budget, the government has announced a wide range of initiatives with a view to consolidating the economic recovery, developing the economy and building a caring society. The finance secretary now predicts the 2009/10 consolidated account will have an estimated surplus of $13.8 billion instead of a deficit of $39.9 billion. The turnaround is a combination of better operating revenue, lower operating expenditure, and unexpected land revenues. The revised amount for operating revenue is $255 billion, which is some $48 billion more than the original estimate. Based on history, it is likely that the final outcome for 2009/10 will be better than the $13.8 billion surplus.

Turning to the coming fiscal year, the Government expects to have a consolidated deficit of $25.2 billion in 2010/11. The consolidated account is expected to remain in the red in 2011/12 and 2012/13, but then turn into a small surplus in 2013/14 and 2014/15. A closer review of the figures shows significant deficits on the capital account being offset by surpluses on the operating account. The forecasted capital account deficits in the latest medium range forecast are close to $65 billion more than those in the previous one.

Indonesia

Indonesia’s central bank raised its 2011 economic growth forecast to as much as 6.5 per cent from an earlier forecast of as much as six per cent as consumer spending accelerates. The central bank earlier this week raised its estimate for 2010 growth to 5.6 from 5.2 per cent. Asian economies from China to Vietnam are picking up speed after policy makers boosted spending and slashed borrowing costs to counter the global recession. Indonesia fared better than its neighbors during last year’s world slump because it relies less on exports, and consumer confidence has been buoyed by the most stable political climate since the 1998 ousting of ex-dictator Suharto. The country’s economy expanded 4.5 per cent last year.

Private consumption is forecast to grow higher in the first quarter. Private consumption accounts for about 68 per cent of Southeast Asia’s largest economy. While domestic demand remains strong growth will be driven particularly by external factors in line with global economic recovery as seen from increasing exports since the fourth quarter last year. Growth in Indonesia’s $514 billion economy has been supported by improved consumer confidence, which according to a central bank index rose in January to near the five-year high recorded in July 2009.

The global economic recovery impacted positively on the development of the country’s external economic sector. Indonesia’s non-oil/non-gas exports in the fourth quarter of 2009 were recorded up 17 per cent and they continued to increase in January this year.

Increases not only happened in mining and agricultural product exports but also in manufacturing product exports. The development made industrial and trade sectors grow higher than expected. Imports also rose in line with the export hike although still slightly.

Besides the improving export performance private consumption also showed an improvement, confirmed by various indicators such as imports of consumer goods, car and motorbike sales and retail sales. In the future, the household consumption is predicted to keep increasing in line with higher income as a result of income effect from improvement in exports and maintained consumers’ confidence.

On the price side inflation pressure is believed not to be significant at least in the first semester this year. The rate of inflation in the first two months this year remains low.

The relatively controlled inflation rate is also reflected by the core inflation rate which is down from 4.43 (year on year) in January 2010 to 3.88 per cent in February.

On the whole future inflation is believed to remain at five plus and minus one per cent in 2010 and 2011. Although the domestic economic activity is rising I believe it will not surpass the potential output level so that it will not cause over inflation pressure.

Transactions in the first quarter this year are predicted to give a bigger surplus than initially projected. Foreign investors’ confidence on the country’s economic prospects continued to be better as reflected by the surplus in capital and financial transactions which still remained high. Based on all the developments the surplus in the Indonesian Balance of Payment (NPI) for 2010 is predicted to be higher than initially projected.

But some analysts are of the view that Indonesia has overtaken Cambodia as the most corrupt country in the Asia-Pacific region in the eyes of business executives. The perception that corruption is especially bad in Indonesia will make it more difficult for the country to attract foreign direct investment. The absolute level of corruption in Indonesia might not be any worse than in any other Asian country.
Published in Business and Review on Monday 22/03/2010
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