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5 Nov 2008

Thai Economy

3Q08 GDP Projection–4.3% Growth, 4Q08 < 4% Likely amid Rising Risks (Business Brief No.2342)

The monthly economic indicators for September recently released by many agencies show that the fallout of the global economic crisis, coupled with domestic political violence, resulted in an economic slowdown in 3Q08, and pointed to a continuing downturn in the quarters ahead.
- KASIKORN RESEARCH CENTER (KResearch) forecasts that Thailand's 3Q08 GDP may have grown around 4.3 percent YoY, lower from the 5.3 percent growth in 2Q08. Seasonally adjusted Q-o-O basis, the 3Q08 GDP is expected to have grown 0.2 percent, down from 0.7 percent in 2Q08,in a continuing slowdown from the first quarter of this year. This easing trend is attributed largely to ebbing investment and a rising current account deficit. Production slowdowns are expected in the agricultural and industrial sectors. Similarly, construction, hotel and restaurant businesses are expected to experience shrinkages due to a number of economic downsides, especially lackluster tourism.
- External risks may become worse than earlier forecast during 4Q08 and into 2009. The global financial crisis, ignited by the US financial meltdown, has led to greater anxiety about an economic recession worldwide. The problem will deal a direct blow to Thailand's exports which have started to see slowdown in 4Q08, and will feel greater impacts next year. On the domestic front, our political uncertainties may hurt sentiment with foreign investors and tourists as well as domestic consumers. Nonetheless, the Thai economy may receive a boost from easing global oil and commodity prices, which should help tame inflation. In addition, many have pinned their hopes on the government's economic stimuli. Lately, guidelines have been laid out for the preparation of an additional THB100 billion mid-year supplementary budget for FY2009. If effectively implemented, the program should help boost the GDP and relieve some unemployment problems. Meanwhile, the easing inflation rate will provide greater leeway for the Bank of Thailand (BOT) to adopt a more easing monetary policy that would complement the government's accommodative fiscal measures.
- Amid increasing downside risks to growth, KResearch forecasts that the Thai economy in 4Q08 may record slower growth of lower than 4.0 percent, putting the average growth for 2008 in a range of 4.7-5.0 percent. This decelerating growth is expected to continue into 1Q09 and 2Q09.

For the policy challenges going forward, the government should brace for the impacts on our exports and tourism. Concerning fiscal policy, despite the government's huge spending plan to spur the economy, the real benefits to the economy lie in budget spending efficiency and related projects' quality plus effectiveness. Meanwhile, the role of the BoT is vital, especially in matters of the monetary policy wherein sufficient liquidity in the financial system and the Baht stability must be maintained in addition to an appropriate interest rate policy. Despite the easing trend now, the Baht may be bolstered by a possibly weaker USD due to the fragility of US economic fundamentals, a skyrocketing fiscal deficit, plus the possibility of record-low US interest rates. In addition, due attention should be paid on maintaining employment stability. To this end, focus should not only be on accelerated budgetary disbursements, but also efficient job creation through the transfer of workers from affected businesses to those facing labor shortages as well as human resource development to increase competitiveness. Moreover, community development projects should be launched to create income and add value to local produce, as well as to promote self-reliant communities based on the sufficiency economy philosophy to accommodate the massive exodus of labor from the industrial and service sectors back to rural areas.

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