1. Higher food and fuel prices: What is the impact on the Thai economy and what to do about it?

2. 2 higher food and fuel prices Are high prices temporary or permanent? USD per barrel Index (Feb 2010 = 100) Source: World Bank Economic Prospects Group and staff calculations

3. 3 higher food and fuel prices Are high prices temporary or permanent? 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. 4 higher food and fuel prices Are high prices temporary or permanent? Source: World Bank Economic Prospects Group and staff calculations Nominal Indices (2000 = 100)

5. 5 higher food and fuel prices Are high prices temporary or permanent? Source: IMF (April 2011 WEO) Growth rate of primary energy consumption (percent)

6. 6 impact on the Thai economy: growth Healthy 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. 7 impact on the Thai economy: growth Farm income has risen faster than rural prices despite weak output. Sources: Bank of Thailand, Ministry of Commerce and World Bank staff calculations Annual rate of growth, 12-month MA (percent)

8. 8 impact on the Thai economy: growth Higher 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 Indices, 12-month moving averages

9. 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

10. 10 impact on the Thai economy: growth When 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 Change in Average Wages Q4 2009 to Q4 2010 (percent)

11. 11 impact on the Thai economy: growth Although 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)

12. 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 products increased their share in Thailand’s export basket. Average export growth rate 2010 vs. 2007. Sources: Bank of Thailand, Ministry of Commerce and World Bank staff calculations.

13. 13 impact on the Thai economy: growth Recently, 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.

14. 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.

15. 15 impact on the Thai economy: inflation Inflation has been low because demand-pull factors are still subdued and administrative measures have contained cost-push pressures. Transport and fuel inflation (3m/3m growth, annualized) USD per barrel Source: CEIC, US Energy Information Administration.

16. 16 impact on the Thai economy: inflation But expectations are increasing.

17. 17 impact on the Thai economy: risks Continued 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, reflecting importance 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. 18 impact on the Thai economy: risks Higher food prices can potentially harm the poorest in society. Year-on-Year Growth Rate (percent) Source: NSO, NESDB, MoC and World Bank staff calculations.

19. 19 impact on the Thai economy: risks Fiscal 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. 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. Annual rate of growth of production of food crops, 12-month MA (percent)

21. 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. Oil Intensity (consumption tons per $1 million of real GDP in 2005 USD) (log of ) GDP per capita

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