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Before the 1997 economic crisis, Thailand was one of the fastest growing economies in Asia and enjoyed a high rate of economic growth with price stability. In the mid 1980s, Thailand changed its development policy from industrialisation based on import substitution to an export promotion strategy, resulting in deeper integration into the world economy through stronger export performance and an increased total trade to GDP ratio.
While Thailand was the first country hit by the 1997 crisis, it has made an impressive and rapid recovery. Among the South East Asian countries hardest hit by the crisis, Thailand stood out in maintaining political stability, strong real economic performance, and investor confidence. Thailand’s recovery since the economic crisis of 1997 is illustrated by macroeconomic performance and data in recent years. In 2002, GDP expanded by 5.3%, which was higher than forecast. This expansion took place amidst a lacklustre global economy and threats of terrorist attacks. Domestic demand, in particular private spending, was the major driving force. At the same time, external demand, as reflected in markedly increased exports, strengthened the country’s economic recovery process. In addition, the government measures to support the real estate sector and policies to improve consumer purchasing power, especially in rural areas, were vital factors in Thailand’s economic development. Following a strong performance in 2002, the Thai economy grew by 6.3% in 2003.
An excellent hub for business operations in South East Asia, Thailand provides a cost effective option and business friendly environment for New Zealand and other international companies seeking close proximity to wider Asian markets, especially those in the Greater Mekong Sub-Region.
Thailand was an agricultural based economy. However, during the past 30 years, Thailand has undergone a significant industrialisation process. The proportion of GDP attributed to the agricultural sector has declined to 12.4%, while industry has substantially expanded to account for more than 59% of GDP.
Similar to other developing economies in the 1970s, Thailand’s industrialisation process began with labour-intensive industries such as textile, apparel and footwear. Thailand continues to move up the value chain and now produces predominantly electrical machinery, mechanical appliances, and computer parts and components.
Table 4.1: Thailand - Selected Macroeconomic Indicators
| 2001 | 2002 | 2003 | ||
| GDP US$bn | 115.2 | 126.8 | 136.5 | |
|
12.4 | |||
|
59.5 | |||
|
64.2 | |||
| GDP Per Capita US$ | 1,832 | 1,990 | 2,149 | |
|
1.9 | 5.3 | 6.3 | |
|
6.2 | 7.6 | 8.5 | |
|
5.4 | 6 | 5 | |
| Exports US$bn | 65.1 | 68.8 | 75.9 | |
| Imports US$bn | 61.4 | 64.2 | 65.3 | |
| Goods and Services Exports (%GDP) | 66.1 | 64.8 | 66.2 | |
| Inflation | 1.6 | 0.7 | 1.6 | |
| Unemployment rate (%) | 3.3 | 2.4 | 3.4 | |
The service sector also plays an important part in Thailand’s economy. Services account for about 45% of GDP and about 40% of employment. In 2001, GDP originating from the service sector was over US$52 billion with an average annual growth rate of 3%. As illustrated in Figure 4.1, commerce (wholesale and retail trade) is the largest service sector (33.9%), followed by transport and communications (18.4%). Service sectors accounted for a large share of FDI, in particular, finance and retail trade.
On the international side, the recovery of external demand from 2001 was another factor that helped the Thai economy grow beyond expectations. In 2002, the continued expansion of domestic demand coupled with the recovery in exports led to a 4.6% increase in import value, to a total of US$64 billion. In 2002, the current account registered a surplus of US$7.6 billion. This was higher than the previous year’s surplus due to a recovery in exports together with the net service income and transfers account recording a surplus comparable to the earlier years. At the same time, the capital account, registering a deficit of US$4.7 billion, also improved over the previous year as external debt repayment slowed down. Thus, the balance of payments registered an overall surplus of US$4.2 billion.
Figure 4.1: Thailand’s GDP originating from Services in 2001
Source: National Economic and Social Development Board
The Thai economy has continued to improve well since 2003 despite external uncertainties and shocks such as SARS. The key drivers have been the strong performance of export and private consumption. Exports of goods reached a record high in May 2003 at US$6.5 billion and have since remained at a monthly average of US$6.4 billion with average export growth around 12% year-on-year. This growth is attributed to the diversification of Thai exports, both in terms of product types and market destinations. Exports are well balanced between agricultural, agro-industrial, and manufactured goods. Economic growth in the private sector is strong. On the one hand, a strengthening of consumer confidence in future income has induced strong household spending. On the other hand, consumers have benefited greatly from lower interest rates and greater access to financial lending institutions, leasing firms, and other non-bank institutions.
In the years to come, Thailand’s economy is expected to perform satisfactorily, with the continued support of favourable external and internal forces. Exports are likely to increase as the US and Japanese economies recover and as China continues to grow in importance as an export market. Consumption growth will be maintained through the low interest rate policy. To prepare for new challenges, the Thai Government will put in place measures to help sustain the economic recovery, particularly to foster the expansion of exports and consumption. These measures are designed to encourage private investment, a new driver of growth in Thailand’s economy. Future Thai economic development is expected to be driven by a combination of export and investment growth.
In recent years New Zealand has been one of the fastest growing economies both in the region and among OECD countries.
During the 1950s and 1960s New Zealand was one of the world’s most successful economies, enjoying a period of sustained full employment and annual average GDP growth of 4%. However, by the early 1970s weaknesses were beginning to emerge. Access to key world markets, especially for agricultural commodities, became increasingly difficult. High levels of protection and government borrowing dampened productivity growth, reduced competitiveness, and led to balance of payment problems. By the early 1980s the combination of expansionary macro policies and industrial assistance had led to significant macroeconomic imbalances, structural adjustment problems and a rapid rise in government indebtedness.
From 1984 onwards, the direction of economic policy in New Zealand turned away from intervention. On the macroeconomic level policies were aimed at achieving low inflation and a sound fiscal position, while microeconomic reforms opened the economy to world prices and competitive pressures.
Following the mid to late 1980s period of reform, New Zealand’s economic performance improved. GDP growth over the 1990s averaged 2.7%, with particularly strong output growth in 1993 and 1994. Against a backdrop of a slowing and uncertain world economy, the New Zealand economy has been resilient, recording average growth above 3% since 1999. Economic performance over 2002 and 2003 has been even stronger, ranking among the top OECD performers at around 4%.
Growth over this period was aided by solid agricultural output, high commodity prices, a competitive exchange rate and a robust labour market. In addition, strong net migration levels have supported domestic economic activity. While 2003 saw a reversal in some of these favourable conditions (particularly lower commodity prices and the appreciation of the New Zealand dollar), buoyant domestic demand has sustained growth.
The labour market remains strong, with the unemployment rate falling steadily over 2003 to reach its lowest level in sixteen years and the fifth lowest in the OECD. Since 2000 inflation has remained comfortably within the Government’s target range of 1-3% over the medium term.
After an adjustment period, the phased reduction of protection in the manufacturing sector has led to long-term improved productivity. Throughout the 1990s New Zealand’s manufacturing sector experienced output growth of 31% and increased employment. Increased trade has been the primary driver of growth, with annual growth in manufactured exports averaging 8% since 1990.
While accounting for only 4.9% of GDP[1], the agriculture sector is critical to New Zealand’s economy. Accounting for 52% of goods exports and generating 150,000 jobs, the sector and its downstream effects have a significant influence on the overall health of the New Zealand economy. Key agricultural products include dairy products, meat, wool, apples, kiwifruit, onions, wine and processed vegetables.
In addition to favourable pastoral conditions, New Zealand enjoys significant natural energy resources, with reserves of coal, natural gas, geothermal fields, and a geography and climate which support substantial hydroelectric development. The forestry, fishery and minerals sectors account for 2.7% of GDP and 18% of total goods exports. Table 4.2 sets out relevant selected macroeconomic indicators.
[1] Note these figures exclude downstream manufacturing of agricultural products and other activities (e.g. transportation, rural financing, retailing).
Table 4.2: New Zealand - Selected Macroeconomic Indicators
| 2001 | 2002 | 2003 | ||
| GDP US$bn | 45.3 | 52.1 | 67.6 | |
|
5.90% | |||
|
2.60% | |||
|
14.70% | |||
|
72.20% | |||
| GDP Per Capita (US$) | 11,575 | 13,108 | 16,746 | |
| Real GDP Growth | 2.5 | 4.3 | 3.5 | |
| Current Account Balance US$bn 1 | -1.3 | -2 | -3.3 | |
| Current Account Balance (%GDP) 1 | 3% | 4% | 5% | |
| Goods and Services Exports (US$bn) 1 | 18.2 | 19 | 21.7 | |
| Goods and Services Exports (%GDP) 1 | 40% | 36% | 32% | |
| Inflation (CPI) | 1.80% | 2.70% | 1.60% | |
| Unemployment rate | 5.40% | 4.90% | 4.60% | |
1 September 2003 year
Sources: Statistics New Zealand, dx database, NZEIR
Like most developed economies, the services sector in New Zealand is significant, accounting for over two thirds of GDP and three-quarters of all jobs. Over the last decade service industries have grown strongly, even during periods when the economy as a whole under performed. The finance, insurance and business services group is the largest services sector when examined against contribution to GDP (Figure 4.2). Other noteworthy areas include tourism and international education, which rank among New Zealand’s top five sources of foreign exchange revenue. In 2003 over 2.1 million tourists visited New Zealand, while in 2002, 82,000 international students contributed an estimated US$793 million dollars to the economy.
Figure 4.2: Service Sectors in New Zealand (contribution to GDP)
Source: Statistics New Zealand
Looking to the future, the New Zealand Government has formulated a set of growth-oriented policies designed to deliver the long-term sustainable growth necessary to improve the living standards of all New Zealanders. The Growth and Innovation Framework (GIF) has set a goal of returning New Zealand’s per capita GDP to the top half of the OECD.
The Framework identifies innovation and knowledge as key drivers of growth. It seeks to increase innovation throughout the economy by:
