Clearing Building Blocks

Thailand

Economic News

22 Jul 2010
Text size +-
Recommend
With Thailand's economy emerging from recession, having posted positive results in the last quarter of 2009, and buoyed by the government's economic stimulus package, analysts are tipping solid growth for the construction sector this year.



The last three months of 2009 saw GDP increase by 5.8% compared to the corresponding period in the previous year, flattening out the retreat of the economy to 2.3%, below the 3% estimated by officials. According to the National Economic and Social Development Board (NESDB), at least some of the growth in the final quarter was due to expansion in the construction sector, a trend that is expected to carry on into 2010.



Voravan Tarapoom, the managing director of BBL Asset Management, told the Reuters news agency on March 9 that building supplies, along with energy stocks, were among those expected to do well as the economy regained strength.



"We like retail as domestic demand recovers, energy because of the global economic recovery and construction materials because of the government's stimulus package," said Voravan.



This positive outlook was reinforced by a report carried in the local press on March 8, citing the director of the Iron and Steel Institute of Thailand, Wikrom Vajraragupta, as predicting steel demand to increase by between 13 and 20%. Even at the lower end of the estimate, demand should hit 11.5m tonnes, with 60% of this to be used in construction projects and government-planned infrastructure projects such as road and rail developments, he said.



"Typically, annual steel demand growth is roughly 2 percentage points higher than the country's GDP growth. For example, if Thailand's GDP grows by 6%, steel demand will grow around 8%. So, the forecast for steel demand this year is unusually high because of the economic recovery and the government's economic stimulus programmes," said Wikrom.



Though positive, Wikrom did say steel demand would not spike as sharply unless the problems surrounding the Map Ta Phut industrial development were resolved and construction work allowed to resume on a series of major petrochemical projects.



Last October, the Central Administrative Court ordered that work on 64 industrial projects at Mat Ta Phut be halted because they had not been given approval by the state agencies required to conduct environmental and health impact studies.



The projects, with a combined worth of some $9bn, include hydrocarbons, petrochemical plants and building materials production facilities, with a number being developed by Siam Cement Group (SCG), the country's largest company.



Though the Map Ta Phut knot has not been completely untied, it does seem to be unravelling to some degree, with the Central Administrative Court handing down a ruling in late-February that construction work could resume at seven sites, though health and environmental studies will still have to be carried out and clearances given before the projects can become operational.



Six of the projects given the go-ahead belong to SCG or its subsidiaries, with the remaining development a $130m bisphenol plant being constructed for PTT Phenol, a subsidiary of leading energy firm PTT.



Even though the court has granted permission for work on just a handful of projects to continue, experts see the decision as positive, bolstering the stocks and the confidence of construction firms.



The ruling should be popular with the market, Pichai Lertsupongkit, a senior vice-president of Thanachart Securities, told the local press on February 25. "The market expects that there will be other projects given permission to proceed going forward," he said. "It should help boost investor sentiment as well as share valuations for the companies involved."



While the court's ruling should encourage investors, enthusiasm will remain tinged with caution. There are a number of factors that could still adversely impact the construction sector's return to solid growth, not least of which are ongoing concerns over political instability that continue to undermine confidence.



There is also the question of when, rather than if, the Bank of Thailand (BOT), the central bank, will raise interest rates, making obtaining cash for construction developments more expensive. Currently the reserve governors are maintaining its key rate at 1.25%, having decided at a meeting on March 10 to leave the benchmark unchanged until at least April.



According to Usara Wilaipich, a senior economist at Standard Chartered, the central bank may further delay raising rates due to uncertainty over the political situation and the difficulties the state is having in disbursing the funds from its economic stimulation programme.



"I'm quite surprised that the BOT is looking to normalise rates sooner despite the increasing risk factors for growth prospects," she said in an interview with international press following the bank's decision. "We don't expect the recovery to maintain momentum in the second quarter of this year."



Though Thailand's revival may have an element of fragility about it, the NESDB has predicted GDP to expand by between 3.5% and 4.5%. If the flow of major investments at Map Ta Phut can be brought back on tap and other public and private projects continue to be rolled out, the construction sector will be well placed to exceed these growth predictions by a fair margin.

Covid-19 Economic Impact Assessments

Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.

Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.

Register Here×

Product successfully added to shopping cart

Read Next:

In Thailand

Will restricting numbers protect Thailand against excessive tourism?

By enacting measures to preserve natural and heritage sites, Thailand is stepping up efforts to protect its visitor attractions and promote sustainable tourism, although the intervention is...

Latest

Terawan Agus Putranto, Minister of Health in Indonesia

In what ways have mobile applications helped to limit community transmission of Covid-19 in Indonesia?