For the Thai economy, 2010 was a year that defied many predictions. It saw the country overcome many obstacles that could have derailed the recovery from the global downturn, though 2011 will surely present additional challenges.
Final figures have yet to be released, but official estimates put the expansion of GDP at 7.8%, with growth driven by booming exports, an increase in local consumer demand and higher state spending that channelled additional funding into the economy across the year.
Though it is no surprise that these factors were able to drive the economy forward, the fact that much of this progress was made in a climate of crisis was more unexpected. The political situation deteriorated in May, when security forces moved in to break up long-running anti-government protests that had shut down much of central Bangkok leading to street violence and casualties.
Despite scenes of fighting in the streets – images which were beamed around the world – Thailand’s crucial tourism industry did not take the hit that many had forecast. Indeed, according to estimates from the Tourism Authority of Thailand issued in early January, between 15.7m and 15.8m international visitors landed last year, an 11.5% improvement from the 14.1m arrivals in 2009. Though officials acknowledged that the year-end result could have been better had it not been for the demonstrations and violence that marred the middle of 2010, the near record-breaking numbers of tourists points to the resilience of both the industry and the economy as a whole.
The economy's robust performance over the last year prompted Thailand’s central bank to increase its key rate on one-day bond repurchases at the start of 2011, raising it by 0.25% to 2.25% on January 12, the fourth increase in its benchmark rate in seven months. One of the main reasons given by the reserve for raising rates was the need to cool consumer demand and inflation. The consumer price index rose by 3.3% in 2010, with the Bank of Thailand (BoT) forecasting inflation to be within the 3% to 5% range for this year.
“Pressure on headline and core inflation, going forward, is expected to rise as a result of demand pressure and the clear upward trend in oil and commodity prices,” the BoT said in a statement issued on January 12.
Looking ahead, 2011 may see many of the same challenges posed over the past 12 months rise to the surface again. There is the potential for political tension to bubble over, with the country set to go to the polls before the end of the year. Most projections on the future direction and health of the Thai economy warn that growth and development are dependent on political and social stability. In an election year – one coming on top of the tensions of 2010 – such warnings will be all the more salient.
The forthcoming political contest could have another impact on the economy as politics once again casts a shadow over economic activity. Prime Minister Abhisit Vejjajiva appears to have already started campaigning, announcing plans in early January to provide just over 9m low-income households with free electricity. While this additional flow of capital into the domestic economy may be welcomed by many, it could also serve to add more fuel to inflationary fires and put a further strain on the budget at a time when the economy could be cooling.
The BoT has also warned that 2011 could see weaknesses in the global economy, in particular in major trading partners such as the US and the EU, which could have a knock-on effect on Thailand. A slowdown in these countries would result in a drop-off in demand for Thai exports and could also push up the cost of borrowing, the bank’s deputy governor, Atchana Waiquamdee, said on January 11.
The central bank has accounted for these various potential pitfalls while compiling its forecast for 2011, with the BoT projecting a GDP increase between 3% and 5%, though it has said this figure is open to revision. The bank also expects exports to increase by 11-14%, significantly lower than the 28% jump seen in 2010. The slower rate of anticipated growth is being attributed to weaker demand in key markets. The BoT is confident, however, that domestic demand and investment will offset this decline and drive the economy forward.
Having closed out 2010 with a string of positive achievements, it is essential for Thailand to consolidate the gains made over the past 12 months and to overcome the challenges that will likely arise in the coming year in order to strengthen the economy and re-establish social cohesion.