Global Watch

Global Watch June 2003 special issue: Why Is Thai Economy Booming? Are there any signs of Bubble Economy?(Full Text)

1. The Thai economy is booming. Economic growth rate for the year 2002 was 5.2% yoy, the highest level since the currency crisis in 1997. This is also the third highest growth rate in major East Asian countries following China and Korea. Supporting this robust economy is its domestic demand stemming from healthy consumption and capital expenditure. Private consumption is especially buoyant and is working as a major growth driver. In recent months there is even a concern that consumption is overheated and that the Thai economy is nearing the state of 'bubble' economy.

2. The following four factors can be cited as the forces supporting strong consumption; 1) improvement in employment environment, 2) effect of low interest rates, 3) expansion of personal finance market, and 4) release of pent-up demand (replacement demand).

3. Although some view that Thai economy has already entered the state of bubble economy, signs of bubble economy are yet to be seen at this moment. Asset prices (stocks and land) are rising only modestly, as speculative investments, which were apparent in the bubble economy period in the first half of 1990s, are still limited. This is probably because, unlike early 90's, speculative inflow of foreign money is decelerating. Current boom is driven by domestic money, and the economy remains non-speculative. It should be noted, however, that if consumption continues to grow at the current pace, it could push the Thai economy into bubble.

4. Growth momentum of consumption will gradually slow down hereafter. However, it will not be a rapid and substantial downturn, and overall consumption is expected to stay resilient.