Wednesday, April 22, 2009

Thailand's growth slashed to negative 3.5%

Uptick expected to begin next year
Published: 23/04/2009 at 12:00 AM
Newspaper section: Business

The Thai economy could shrink by 3.5% this year as a result of the global recession and domestic political instability, according to the Bank of Thailand.

Duangmanee: Fiscal outlay could worsen decline

The central bank yesterday slashed its 2009 growth forecast to a range of -3.5% to -1.5%, down from a forecast of zero to 2% growth made in January.

The contraction would mark the first in 11 years for the Thai economy. Growth is expected to rebound to a modest 1.5% to 3.5% for 2010, down from earlier forecasts of 2% to 4%, according to the central bank's latest Inflation Report.

Duangmanee Vongpradhip, the central bank's assistant governor for the Monetary Policy Group, said the forecasts, made on April 8, remained plausible even with the economic impact of the Songkran riots and the state of emergency imposed on Greater Bangkok.

The political turmoil could push the economy toward the "lower range of the forecast", she said.

A potentially greater risk is government spending, viewed as the main driver for the economy this year as domestic consumption, investment and exports all declined.

Miss Duangmanee said there was a possibility that the economy could decline even further than current projections if fiscal spending missed targets.

Economic forecasters have been forced to revise their estimates in the wake of this month's crisis, which saw the red-shirted members of the United Front for Democracy against Dictatorship successfully disrupt the Asean summit in Pattaya and culminated with widespread protests across Bangkok and the country over the Songkran holidays.

Miss Duangmanee said it was too early to estimate the impact the protests would have on tourism this year, but added that April was typically the low season for the industry.

She said the blockade last December of Suvarnabhumi Airport by the yellow-shirted People's Alliance for Democracy, a group opposed to former prime minister Thaksin Shinawatra, had a greater impact on tourism as it came at the height of the season.

In any case, tourism bodies have estimated the damage from the Songkran riots at 200 billion baht, with arrivals projected to fall to just 10.9 million from 14.1 million last year. Cabinet ministers on Tuesday agreed to a range of new measures to assist the tourism sector.

In any case, the central bank yesterday said its forecasts projected the US economy to stabilise in the second half, with growth resuming in mid-2010.

"There have been signs of bottoming out in the world economy, but we cannot judge the trend from just a single month's data. There is a possibility that the global economic recession could deepen or slide again after a temporary rebound," Miss Duangmanee said.

The Thai economy suffered its most severe slump in the fourth quarter of 2008, at -4.3% year-on-year and -6% from the previous quarter as the falling exports and sagging investment was compounded by the airport seizure by the PAD, she said.

Miss Duangmanee repeated that the main downside risk to economic growth for this year and 2010 was fiscal spending.

The central bank's new forecasts include lower estimates for public investment and public consumption.

Most of the 98 billion baht in stimulus funds committed by the government this fiscal year under a supplementary budget are targeted at stimulating household consumption, rather than for investment.

Moves by the government to cut 200 billion baht in spending from the fiscal 2010 budget due to sliding tax revenues could also affect economic growth this year, although the impact could be mitigated by off-budget spending and front-loading disbursement at the beginning of the fiscal year starting October.

Miss Duangmanee said the government's public-utility subsidies for low-income households and its free education policy for schoolchildren would help curb inflation this year. In any case, she said, the central bank saw no prospects for deflation.

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