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12 Apr 2006

International Economy

Japanese Economy, 2006: Out of Deflation ... A Boon to Thai Trade

คะแนนเฉลี่ย

Japan has the second largest economy in the world behind the US. The country ranks first as Thailand's trade partner and investor. Over the past few years, the Japanese economy has enjoyed steady growth. In 2005, their GDP grew 2.7 percent against the 2.3 percent of 2004. Their economy has been undergoing a long recovery after being mired by post-bubble economic stagnation over the past decade. Japanese economic growth can be attributed mainly to increased supply and demand from the private sector. KASIKORN RESEARCH CENTER (KResearch) forecasts that, in 2006, the Japanese economy will overcome deflationary pressures and experience stable growth. This will likely lead to steady growth in consumption, investment and international trade, especially rising imports into Japan that are expected to be the main driving force for Thailand's exports and economic expansion.

Japanese Economy, 2005-2006

In 2005, Japan was challenged by the oil crisis, natural disasters, dissolution of their parliament and deflationary pressures that had lingered for many years. Still, its economy managed to record growth of 2.7 percent, thanks to expansion in the private investment by some 7.8 percent. The increased investment led to rising employment, which had a psychological boost to Japanese consumption of goods and services. As a result, private consumption increased by 2.2 percent. In addition, Japanese exports grew 5.9 percent, thanks to upbeat economic growth in the US and China - Japan's No. 1 and No. 2 importers. Consequently, Japan's current account surplus rose by 18 percent.

Looking ahead, KResearch expects that the Japanese economy will post an average growth of 2.3 percent in 2006, close to that seen during 2004-2005, thanks to continued expansion in private investment and consumption in light of rising employment and higher wages. The unemployment rate in February 2006 dropped to 4.1 percent, the lowest level in seven years. Moreover, housing demand is expected to see continued growth for many years ahead, buoyed by the first home purchases by 'baby-boomers' children. Given this, land prices in Japan have been on the rise. On the external front, exports of goods and services from Japan are poised to record high growth, as well, thanks to the growth of China, the US and emerging economies in 2006, which are expected to do close to what was seen in 2005. The year 2006 will be regarded as a major turning point for the Japanese economy as the deflation that had plagued the economy for years may be coming to an end. In 2006, their CPI is expected to rise to 0.4 percent, against the 0.0 percent in 2004, and -0.3 percent in 2005. For fiscal year 2007 (April 2006-March 2007), the Bank of Japan is expected to end its ultra-eased interest rates and begin to adopt a tightened monetary policy.

Sino-Thai Trade

As Japan is Thailand's largest trade partner and investor, Japanese economic stability over the next few years will likely be a boon to bilateral trade between Thailand and Japan. In 2005, Thailand's exports to Japan totaled USD15.156 billion, rising by 12.28 percent, over-year. The Japanese export market accounts for around 13-14 percent of Thailand's total exports, almost on a par with the US - Thailand's largest marketplace - which accounts for around 15 percent.

In terms of exports, the top twenty Thai exports to Japan represented 55.65 percent of the total export value in 2005. Thai exports that should be doing well in Japan in 2005-2006 include electrical circuits, computers and parts, rubber, automobiles and parts, camera lenses, electrical equipment and parts, plastic products, aluminum products, air-conditioners, telephones and faxes. Exports that grew more than 30 percent in 2005 were air-conditioners, electrical circuits, telephones/fax machines and processed chicken. In early 2006, exports that had increased more than 30 percent included rubber, electrical equipment and parts. In conclusion, Thailand is still able to steadily ship exports to Japan, particularly in the categories of industrial goods that use advanced technologies, which usually come from transnational investments, as well as goods from resource-based industries.

For imports, Japan is the number one origin of imports entering Thailand. In 2005, Thailand imported 16.92 percent more goods from Japan than the year before, to USD26,065.7 million, from USD22,293.8 million previously, which accounted for 22 percent of Thailand's total imports, exhibiting a high dependence on imports from Japan. Thailand's major imports from Japan included capital goods and raw materials for the industrial sector. The top ten imports included machinery, steel and products, electrical machines, electrical circuits, chemical products, automobile parts, plastic products, scientific instruments, plus metals and metal products. The proportion of these 10 items totaled more than 80 percent of the total import value from Japan in 2005, wherein imports in these categories have tended to rise steadily over recent years.

In the future, a vital factor that will affect trade between Thailand and Japan is the JTEP (Japan-Thailand Economic Partnership) that covers the establishment of a bilateral FTA between Thailand-Japan. Talks between the two countries have already reached mutual agreement, where formerly, the signing was scheduled for April 2006, which would help increase the trade value between the two countries substantially. It is forecast that exports of Thailand's agro-industrial goods and labor-intensive goods, as well as imports of capital goods and manufacturing factors from Japan for the industrial sector will increase significantly. However, Thailand's political turmoil may delay the enactment of the agreement indefinitely, and the new Thai government will have to reaffirm the direction of this agreement later.

International Economy

Japan