Flood Crisis Hurting 4Q11 GDP…Adding Pressure to Industry and Inflation (Current Issue No.2268)

Unprecedented flooding since late July 2011 has so far resulted in massive losses to Thailand with damage being expected to escalate. KResearch has assessed that the flooding will likely diminish Thailand's GDP by about THB75-113 billion. Losses to the agricultural sector may amount to THB20-30 billion, while industrial sector losses could reach THB38-59 billion. Harm to the service and other sectors not included above may reach THB17-24 billion.

KResearch expects that the flooding may shrink Thailand's 2011 economic growth by 0.69-1.04 percent, down to a range of 2.9-3.6 percent (thus averaging 3.3 percent), worsening from our previous forecast of 3.5-4.2 percent, most likely at the median of 3.8 percent.

Because these losses are largely occurring in 4Q11, it is expected that GDP growth during this quarter will slow to 2.0-3.8 percent, falling 2.0-3.8 percent (versus our previous projection of 4.0-5.8 percent).

It is also expected that the flood crisis will not only pressure inflation that is already staying at a high level, but also heighten concern toward the Thai industrial sector that has just recovered from the impact of Japan's triple disaster, and is now daunted by other risks, e.g., a possible second-dip recession in the Eurozone and US, plus a domestic minimum wage hike that will take effect early next year.

With the lessons learned from the flooding caused to many industrial areas and to international investor confidence, relevant state agencies should communicate future contingency plans with them to bolster their confidence. In addition, the government may have to adjust some economic policies to address immediate problems, especially in the rehabilitation of flood-ravaged economic assets. Most importantly, the government should devise effective anti-flood plans to guard against future inundations.