(Thai) Annual Report 2005 - United Overseas Bank

The Thai Economy in 2005 and the Outlook for 2006
The Thai economy continued on its growth path in 2005,
albeit on a slower pace compared to 2004. The 2005
Gross Domestic Product (GDP) of 4.7% was 1.4% points
lower than the GDP of 6.1% achieved in 2004.
Persistent high oil prices throughout the year, the impact
of the December 2004 tsunami on tourism and services
sectors, the severe drought affecting several regional
agricultural sectors, a rising interest rate environment and
a general slowdown in global demand that dampened
Thailand’s exports all contributed to the slower growth
rate. The Thai economy showed strong resilience in
recording a 4.7% growth in the face of less favorable
economic conditions.
Global oil prices surged up more than 50% in 2005 and
the high oil prices was one of the primary causes in the
slowdown of economic growth in oil importing countries,
including Thailand and her main trading partners such as
the United States, Japan and the European Union. The
higher oil price was estimated to have reduced Thailand’s
growth rate by almost 1 percent.
Domestic price levels for goods and services increased
in 2005. Inflation rate went up by 4.5% on average for
the year compared to 2.7% in 2004. The lifting of the
Government’s diesel price stabilization program resulted
in diesel prices increasing by more than 50% in 2005 and
was cited as one of the main factors for increased prices
of products and services.
Thailand’s exports grew around 16% in 2005 compared
to 21% in 2004. This was a result of the slower pace of
economic growth in Thailand’s key trading partners
such as ASEAN, United States, Japan and European Union.
On the other hand, imports grew at a faster pace of
26%. Consequently, Thailand’s net trade balance was
a negative US$7.6 billion in 2005, and led to a current
account deficit of about US$3.2 billion for the year.
Despite this deficit, Thailand’s overall international
reserves remained healthy at US$52.1 billion.
Barring unexpected events, we expect Thailand to
continue grow at a healthy rate of about 4.5% to 5.5%
in 2006. This growth will be driven mainly by exports
and investments. Exports are projected to grow by about
10%-15% with key markets continuing to be ASEAN,
United States, European Union and Japan. New markets
such as the Middle East, India and South America are
expected to grow and contribute more significantly in
the coming years. The strength of the THB will continue
to be a key factor in export growth and we expect
the THB to remain at around the THB 39-40 per US$1
level.
Investments are also projected to increase in 2006, spurred
by the initial phase of the planned mega-projects by the
Government. Furthermore, with the capacity utilization
levels of some industries having surpassed 80%, there
will also be investments required to increase and improve
capabilities.
The first half of 2005 also saw numerous efforts by the
government and non-governmental organizations in
re-building both the infrastructure and economic
activities in the Andaman region that was hit by the
tsunami on 24 December 2004. The 2005 third quarter’s
economic data released by the Bank of Thailand indicated
that these areas had showed good signs of recovery.
Overall bank lending grew by more than 6% in 2005
and growth is expected to continue with investment
expenditures in 2006. Deposit levels which grew by
about 7% in 2005 is also expected to stay on a growth
path.
10 United Overseas Bank (Thai) Public Company Limited