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23 Feb 2006

Thai Economy

Investment Outlook, 2006: Confidence Remains the Key

คะแนนเฉลี่ย

- In 2005, overall investment decelerated from last year. The slowdown could be attributed to sluggishness in private investment, particularly, construction-related investments as a result of ebbing demand in the real estate sector. Meanwhile, public investment increased over the year before. KASIKORN RESEARCH CENTER (KResearch) thus expects that investment, on the whole, may exhibit growth of some 10.9 percent in 2005, down from the 13.8 percent of the year before.

- Public investment will be the key variable for investment in 2006. Progress on investment in the government's large infrastructure-related projects, i.e., mega-projects, should be monitored. It is possible that they may be delayed from previous timetables. Based on the 2006 investment plan, mega-projects are expected to be worth around THB 290 billion. However, in the latest developments, there has yet to be seen any clear consensus for some elements of these projects. As a result, public investment spending in 2006 may not be as large as previously projected. KResearch has assessed such situation (based on the assumption that the mass transit projects will not be able to commence this year, and other projects are delayed.) In the worst-case scenario, public investment may grow only 6.2 percent, against the earlier projection of 22.7 percent, which was based on the supposition that these projects could be implemented as planned.

- In the worst-case scenario, private investment may also feel the pinch, which may result in delays in investment on some projects. However, investments in the industrial sector are set to remain satisfactory, and this may help sustain the growth of private investment at around 7.5 percent, down from the previous projection of 10.3 percent, which was based on the assumption that public investment would help drive economic growth and private investment. However, the earlier projection pointed out that the public investment in 2006 might slow from the year before. Despite the expected upbeat investment for expanding production capacity in the industrial sector, investment in transport equipment and the real estate sector were said to be set to decelerate.

- In conclusion, in the worst-case, the country's total investment may expand only 7.2 percent, whereas earlier forecasts were for it to grow 13.5 percent with the projects proceeding as planned. For investments in construction, in the worst-case, they might grow only 6.2 percent, rather than the earlier forecast of 15 percent with the projects proceeding as planned. Meanwhile, investments on machinery and equipment are expected to grow around 7.7-12.5 percent, with less volatility than the construction sector, because manufacturing industries still have high demand for investment due to transnational companies' intent toward investments in Thailand. Also, large Thai businesses also want to invest more to support growing economic activities in the future, particularly in the fields of electricity, energy, logistics and information technology.

- Businesses with high investment demand in 2006 include key industrial sectors such as automotive vehicles and parts; electronics; large petroleum, energy and petrochemical industries; steel and steel products; processed agricultural products, etc. Meanwhile, service businesses forecast to receive higher investments include industrial estates and factories, hospitals, the industrial support sector (procurement and distribution centers locally and internationally, logistics, plus research and development) as well as sea and air freight businesses.

Risks to the investment trend are dependent upon issues related to the mega-projects, and also the direction of oil prices, the Thai economy, as well as the economic growth of the key investor countries such as Japan, USA, the EU and Asian countries. KResearch forecasts that uncertainties, including political issues, may effect the short-term investment atmosphere in the timing of decision-making to invest. Investors may wait and see on these matters until a clear direction is seen in the market, and may weigh the costs of investment against the policies supporting investment activities of the Government. However, the strong infrastructure of the Thai economy is a factor that will continuously support investment in the future. If the situation becomes clearer, it is expected that overall investment will not be effected in the long-term planning of either Thai or foreign investors, at all. Nevertheless, it will depend on uncertainties in the economy that will not last so long that it may affect confidence in Thai economic growth potentials over the mid- to long-term.

Thai Economy