The question is whether the recovery will be sustainable or just a shortterm response to fiscal policy. On the one hand, monetary policy keeps a low profile in supporting the recovery by keeping the policy rate at 1.25 per cent.
At the same time, nonperforming loans (NPLs) are still at a high level, which will derail the road to recovery if not properly managed.
The recovery is still very fragile. Only certain indicators have bottomed out and signalled that a slow recovery is under way. Most other indicators are still in the area of negative growth rates.
For example, the export sector, which accounts for 70 per cent of gross domestic product, dropped 26.4 per cent in June while imports fell 26.3 per cent, as world economic powers such as the United States are stuck in the doldrums.
The Economist reported that the GDP of the US fell at an annualised rate of 1 per cent in the second quarter, which was nevertheless a smaller decline than forecasters had expected.
By the end of the year, the GDP of the US is expected to show negative grow of 2 per cent while that of Japan, Britain, Canada and the euro area will be minus 6.4 per cent, minus 4.2 per cent, minus 2.2 per cent and minus 4.4 per cent respectively.
The Bank of Thailand has recently revised its projection for the GDP of the Thai economy this year to decline not by 1.5 per cent to 3.5 per cent as previously predicted, but by 3 per cent to 4.5 per cent. GDP in the second quarter contracted by 5 per cent, compared with a fall of 7.1 per cent in the first quarter.
Non-performing loan problems may arise to deter the economic recovery.
As of June, the gross NPLs of commercial banks and finance companies were Bt406 trillion, or 5.4 per cent of total loans, decreasing slightly from Bt420 trillion, or 5.51 per cent, in the first quarter.
If we include the NPLs and nonperforming assets of the specialised banks and assetmanagement companies, the bad assets or toxic assets in the whole system would be a much more sizeable amount.
Classifying NPLs by business sector in March, the worst NPL ratios appeared in the construction sector (13.13 per cent), followed by the agricultural sector (12.42 per cent) and the realestate business sector (11.73 per cent).
This suggests unemployment may arise in those sectors.
The government has just started offering tax exemptions and reductions of landtransfer fees for cases in which debt is being restructured according to the Bank of Thailand's notification process. The workouts, core mediation/negotiation centre and coordination among the authorities concerned still lag behind.
Therefore, the government and authorities concerned should shore up the debtrestructuring process to turn the troubled businesses around so as to boost the recovery to a sustainable level.