Higher food and fuel prices: What is the impact on the Thai economy and what to do about it?
Mar 16, 2016
Higher food and fuel prices: What is the impact on the Thai economy and what to do about it?
2
higher food and fuel pricesAre high prices temporary or permanent?
Feb-10
Mar-10
Apr-10
May-10
Jun-1
0Ju
l-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-1
1
Feb-11
70
75
80
85
90
95
100
105
90
100
110
120
130
140
150Dubai Crude $US /Barrel
Agriculture Raw Materials Index (RHS)
Commodity Metals Price Index (RHS)
Food Price Index (RHS)
USD per barrel Index (Feb 2010 = 100)
Source: World Bank Economic Prospects Group and staff calculations
3
higher food and fuel pricesAre high prices temporary or permanent?
Jan-
85
Jan-
87
Jan-
89
Jan-
91
Jan-
93
Jan-
95
Jan-
97
Jan-
99
Jan-
01
Jan-
03
Jan-
05
Jan-
07
Jan-
09
Jan-
11
0
5
10
15
20
25
2010
US$
per
mill
ion
Btu
Oil
Natural gas
LPG
Coal
Crude oil = average of Brent, WTI, and Dubai; coal = Australia, spot; natural gas = Japan; LPG = Saudi Aramco contract price for propane Source: World Bank
4
higher food and fuel pricesAre high prices temporary or permanent?
19811982
19841986
19881990
19921994
19961998
20002002
20042005
20072009
0
50
100
150
200
250
300
350
400
EnergyAgriculture
+160 pct
+36 pct
Source: World Bank Economic Prospects Group and staff calculations
Nominal Indices (2000 = 100)
5
higher food and fuel pricesAre high prices temporary or permanent?
Source: IMF (April 2011 WEO)
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Rest of world ChinaFormer Soviet Union World1981-1999 average 2000-2008 average
Growth rate of primary energy consumption (percent)
20 20 20 20 20 20 20 20 20 20 20 20 20350
400
450
500
550
600
650
700
900
950
1,000
1,050
1,100
1,150
1,200
1,250Domestic Demand External DemandGDP (right axis)
6
impact on the Thai economy: growthHealthy growth projected for 2012, mostly helped by domestic demand.
+5.8 pct
-9.3 pct
+12.0 pct
+0.7 pct+4.9 pct
“Domestic” and “External” demand represent estimated contributions of each to absorbing domestic value-added.Source: NESDB and World Bank staff calculations.
Gross domestic product adjusted for inflation and seasonal fluctuations(THB billion)
7
impact on the Thai economy: growthFarm income has risen faster than rural prices despite weak output.
Sources: Bank of Thailand, Ministry of Commerce and World Bank staff calculations
2008Jan
2008Apr
2008Jul
2008Oct
2009Jan
2009Apr
2009Jul
2009Oct
2010Jan
2010Apr
2010Jul
2010Oct-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0Crop Prices
Crop Production
Farm Income
Rural Prices
Annual rate of growth, 12-month MA (percent)
8
impact on the Thai economy: growthHigher prices of agricultural commodities a net positive for growth because of the link to higher incomes for farmers…
Sources: Bank of Thailand and World Bank staff calculations
2009Jan
2009Mar
2009May2009Jul
2009Sep
2009Nov
2010Jan
2010Mar
2010May2010Jul
2010Sep
2010Nov135.0
140.0
145.0
150.0
155.0
160.0
165.0
105.0
107.5
110.0
112.5
115.0
117.5Farm Income IndexPrivate Consumption Index
Indices, 12-month moving averages
9
impact on the Thai economy: growth… as well as unskilled workers in general, as higher agricultural prices lift agricultural wages, which tends to boost all wages.
Year-on-Year Growth Rates in Real Wages
Overall wages deflated by the consumer price index; agricultural wages deflated by the rural consumer price index.Sources: National Statistical Office, Ministry of Commerce and World Bank staff calculations
2008
Q2
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
-30.0
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
overall Agriculture (right axis)
10
impact on the Thai economy: growthWhen crop prices go up, agriculture draws workers from sectors with relatively low wages, which must be increased to stem the outflow.
Sources: National Statistical Office and World Bank staff calculations
-5 -4 -3 -2 -1 0 1 2 3 4
-5
0
5
10
15
20
25
Change in Employment Q4 2009 to Q4 2010 (percent)
Agriculture
Manufacturing
Retail
Construction
Tourism Oriented
Bubble sizes representaverage wages relative toAgriculture (=100)
Change in Average Wages Q4 2009 to Q4 2010 (percent)
11
impact on the Thai economy: growthAlthough export volume growth has lagged other countries, export value growth has been solid…
Source: World Bank.
Changes in export value and volume from 9/2008 to 1/2011 (percent)
East Asia & Pacific
China
Hong Kong SAR, China
Indonesia
Malaysia
Philippines
Singapore
South Korea
Thailand
0 10 20 30 40 50 60 70
ValueVolume
impact on the Thai economy: growth
12
… because Thailand is now exporting more of products that saw price increases (agriculture, autos, petrochemicals vs. textiles, E&E).
These productsincreased theirshare in Thailand’sexport basket.
Average export growth rate 2010 vs. 2007.
Sources: Bank of Thailand, Ministry of Commerce and World Bank staff calculations.
-4.0 -3.0 -2.0 -1.0 0.0 1.0 2.0 3.00.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
Automotive
Petro-chemicals
Agriculture Products
E&E
Textiles, Garments, Leatherware,
Footware, Furni-ture
Cement and Base Metal Products
Change in weight of product group in export basket (percentage points)
13
impact on the Thai economy: growthRecently, higher export prices have been helped by higher prices for agricultural commodities...
Sources: MoC, Bank of Thailand and World Bank staff calculations.
Index of monthly export value adjusted for seasonal fluctuations.
t=-6t=-4t=-2t=0 t=2 t=4 t=6 t=8
t=10t=12t=14
t=16t=18t=20t=22t=24
80
90
10 0
11 0
12 0
13 0
14 0
15 0
t=0 denot es the be-ginni ng of the global recession and is set
to 100
Gl obal r ecessi on ( Nov 08)
Gl obal R ece ssi on ( Nov 08) Ag P ri ces defl ated
Move men t of se as o na lly -ad ju st ed , mon th ly e xp or t v al ue , t =0 d en ot es th e be gin ni ng o f e xp o rt t ur mo il ep is od es , a nd a re s et to eq u al to 10 0
14
impact on the Thai economy: growth… but in the case of autos, higher prices also reflect rising share of higher value-added passenger cars in the export mix.
Sources: Bank of Thailand and World Bank staff calculations.
Janu
ary-08 Mar
May JulSep Nov
Janu
ary-09 Mar
May JulSep Nov
Janu
ary-10 Mar
May JulSep Nov
Janu
ary-11
-60
-40
-20
0
20
40
60
80
100
120Automotive Export Volume %YoYAutomotive Export Price %YoYAutomotive Export Value %YoY
%YoY
15
impact on the Thai economy: inflationInflation has been low because demand-pull factors are still subdued and administrative measures have contained cost-push pressures.
Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11-5.0
0.0
5.0
10.0
15.0
20.0
25.0
-40
-20
0
20
40
60
80
100
Average of Thailand, Malaysia and IndonesiaAverage of Singapore, Korea and the PhilippinesCrude Oil Prices (Dubai; right axis)
Transport and fuel inflation (3m/3m growth, annualized) USD per barrel
Source: CEIC, US Energy Information Administration.
16
impact on the Thai economy: inflationBut expectations are increasing.
07 Q
1 Q308
Q1 Q3
09 Q
1 Q310
Q1 Q3
90
95
100
105
110
115
120
Thailand: GDP level without the crisis (sa)Thailand: Ac-tual GDP level (sa)
17
impact on the Thai economy: risksContinued increases in oil prices could derail the global recovery. Possible impact of Tohoku earthquake on oil demand:
Crisis in the Fukushima power plant will lead Japan to switch to fossil fuel sources for 10 – 12 mnKW, which will require about 0.3 percent of the world’s oil supply.
The crisis also led to a reconsideration of nuclear power in a number of countries.
Thailand’s recovery still dependent on the outlook for advanced economies most of this gap is driven by incomplete
recovery in external demand, reflectingimportance of continued G3 growth
Actual and simulated GDP levels (sa) based on “no-crisis” assumption. Q1 2008=100
Note: No-crisis scenario shows output levels that would have been had quarterly growth been sustained at the mean rate during 2002-07.Source: Haver and World Bank staff calculations.
18
impact on the Thai economy: risksHigher food prices can potentially harm the poorest in society.
2006 2007 2008 2009-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
Number of Poor
Consumption Growth
Poverty Line
Food Prices
Year-on-Year Growth Rate (percent)
Source: NSO, NESDB, MoC and World Bank staff calculations.
FY 09 FY 10 (budget) FY 10 (actual) FY 11 (budget)0.0
5.0
10.0
15.0
20.0
25.0
21.1 20.3 19.5
20.5
15.9 14.4
17.1 16.7
3.7
6.0
2.5 3.8
Expenditures Revenues Balance
19
impact on the Thai economy: risksFiscal risks still contained despite decrease in diesel excise tax.
Expenditures include both on and off-budget items.Sources: Fiscal Policy Office and World Bank staff calculations.
Percent of GDP
likely to be exceeded
20
what to do about it?
Scale issues: increase vertical integration with agribusiness to get: Investment capital, advanced technology, market access, risk
management tools Increase R&D in agriculture to address climate change
Boost productivity in agriculture
Source: Bank of Thailand and World Bank staff calculations.1997Jan 1999Jan 2001Jan 2003Jan 2005Jan 2007Jan 2009Jan-8
-6
-4
-2
0
2
4
6
8
10
2005-2010 Average: 1.0 pct
1997 - 2005 Av-erage: 3.1 pct
Annual rate of growth of production of food crops, 12-month MA (percent)
21
what to do about it?
Thailand is one of the most oil-intensive countries in the region
Improve energy efficiency
Source: CEIC, BP Oil and World Bank staff calculations.
7 7.5 8 8.5 9 9.5 10 10.5 110
50
100
150
200
250
300
350
400
Korea
Japan
Australia
Bangladesh
China
India
Indonesia
Malaysia
Pakistan
Philippines
Singapore
Thailand
Oil Intensity (consumption tons per $1 million of real GDP in 2005 USD)
(log of ) GDP per capita
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