The US financial crisis that has been spreading to other parts of the globe has ignited a sharp global economic downturn into 4Q08, which may continue into next year. Thailand's highly export-dependent industrial sector will inevitably be hurt.
During 1H08, the Thai industrial sector was driven mainly by exports. Thailand's bright exports during 1H08 received a boost from a healthier global economy. Despite signs of economic recession emerging in some regions, e.g., Japan and Europe, exports to new markets were quite promising. Strong demand and higher export prices for processed agricultural products also helped to boost exports. The GDP of the industrial sector, fueled by solid export growth, thus grew 8.9 percent in 1H08, higher than the average growth of 5.7 percent in 2007. With a decline in monthly data for industrial production from July to August, we project that industrial sector growth may have decelerated to less than 7 percent in 3Q08.
For the remainder of this year, the Thai industrial sector may continue to be affected by domestic political uncertainty. However, the US financial fiasco and the resulting global economic downturn may be the overriding concern. Japanese and other European economies may falter or even experience economic recessions. Meanwhile, Asian markets that used to help offset the slowdown in major economies are starting to ease. Due to these factors, including the higher base effect of 2007 (the industrial sector grew 8.0 percent in 4Q07), the industrial sector is expected to record lower growth in 4Q08. If exports continue to decelerate, the data may decelerate to 5.5 percent. Even so, the healthy growth of the industrial sector in 1H08 may put the full-year growth of 2008 at 7.5 percent, beating the 5.7 percent in 2007.
The Thai industrial sector is expected to experience the adverse consequences from impact of the global financial crisis among the real sectors in 2009. KResearch therefore projects that industrial sector growth may be in a range of 4.5-5.5 percent in 2009, down from the projection of 7.5 percent for 2008.
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