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8 Jan 2008


Industry Outlook, 2008: Adjustment to Cope with Global Economic Risks (Current Issue No.2025)

In 2007, the Thai economy was plagued with slowing domestic demand, in particular, consumption and the private investment that had recorded the lowest growth since the post-1997 crisis period. Even so, Thailand's industrial sector has still experienced high growth thanks to steady exports in line with healthy global economic performance. In 2008, however, global economies may be confronted with several risk factors, i.e., the US economic woes caused by the sub-prime mortgage crisis and the likelihood of further escalation in oil prices. Under these circumstances, the Thai industrial sector is highly likely to be hurt, as Thai industry is mainly export-oriented, with the US being the traditional end market. Meanwhile, Thailand is one of the most oil-reliant economies in Asia.
KASIKORN RESEARCH CENTER (KResearch) has made some predictions about the growth trend for Thailand's industrial sector in 2008, based on the impact of oil prices, coming to the following three scenarios:
The base case scenario: If global oil prices stay on a plateau, with Brent crude averaging some USD92/bbl. against the 2007 average of USD72.5/bbl., the GDP of the industrial sector in 2008 may grow in a range of 4.1-5.7 percent, down from 5.6 percent in 2007.
The optimistic case: If global oil prices increase moderately where Brent crude averages around USD85/bbl., inflation in this case would be around 3.0 percent. This level would be deemed favorable to growth in consumption and investment as well as the implementation of an expansionary monetary policy that would better boost the national economic recovery. It is projected that the GDP of the industrial sector would grow healthily at around 5.0-6.5 percent.
In the worst case where oil prices would average USD100 per barrel, the growth of our industrial GDP might fall to a range of 3.2-4.9 percent.
In 2008, Thai industrial sector may face sudden problems of rising costs for energy and raw materials beyond those obstacles of a US economic slowdown and the appreciating trend of the Thai Baht. However, the present world crises, especially the problems of energy and global warming, may create opportunities for numerous businesses if they develop technology and business models that conform with energy-saving trends and environmental protection. Over the medium- and long-terms, the diminishing international competitiveness would remain a major hurdle for Thai manufacturing sector.
To prepare for the risks and problems of tougher competition, Thai business should adjust by seeking ways to reduce costs and maintain price competitiveness as well as improve efficiency. Modern technology should be used increasingly to improve the quality of their products and develop products that focus on niche markets to reduce price competition. Amid globalization and trade liberalization that are driving competition to new heights, Thai business should turn to investing more in foreign countries to reduce production costs and enhance opportunities in high potential markets.

In addition, the Thai industrial sector is facing another problem of being at the crossroads of entering an era of newly-industrialized status. Economic strategies of the country should turn to technology-oriented and high value-added production. The government should establish strategies for Thai industry and strategies for each industry. Meanwhile, the private sector has to adopt a new paradigm and strategies for changes, as said. Moreover, the government has to provide measures to support entrepreneurs and workers in transforming themselves from conventional industrial processes to the new industrial structure for hi-tech productions.

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