thegreglowe.com

GREG LOWE
in Bangkok

Thai politics will have a heavier impact on the country’s economy than the global financial crisis, according to a report from Moodys Economy.com yesterday.

The standoff between the ruling People Power Party (PPP) and the anti-government People’s Alliance for Democracy sent business and consumer confidence into a tailspin, according to the report. It said Thai households are now as fearful of the future as they were living under military rule last November.

Thailand’s political impasse has distracted the government, preventing it from implementing effective economic policy, resulting in a real term 2.4 per cent YoY drop in government spending in Q208, the report said.

“The best thing the Thai government can do is bolster consumer and business confidence, both of which would receive a huge boost simply from a stable political environment,” the report’s author Alaistair Chan, associate economist at Moodys Economy.com, told The Business Times. “Instability is not completely the government’s fault, but it could do more to be conciliatory to its detractors.”

Thailand’s economic outlook next year is bleak, the report said. The Consumer Confidence Index hit a 10-month low in September, dropping to 76.8 per cent. Domestic spending is weakening as consumer prices rise by 6.2 per cent YoY in 2008, said the report.

Private consumption dropped to 7.2 per cent in August from 9.1 per cent in July. While exports continue to drive the economy as political turmoil continues to scare off tourists and investors. Industrial production is also trending down from a peak of 14.9 per cent in February to 7.9 per cent in August, it said.

Moodys Economy.com forecasts lower oil prices causing Thai inflation to fall to 4.5 per cent in 2009.
Bank of Thailand is expected to cut interest rates to next year, but more effective policies are needed to boost local demand, said Mr Chow.

“Uncertainty in financial markets mean businesses are less willing to borrow and investors less willing to lend,” he said. “Monetary policy is less powerful, so a fiscal response would be a better idea.”

“Hence the government’s signaling of possible tax cuts will provide the best boost to consumption and growth, as will the speeding up of various investment and spending plans. Economic growth will provide the best boost to investor confidence.”

Yesterday the Thailand Development Research Institute said economic next year’s growth is likely to be lower than 3.8 per cent – below the government’s reduced forecast of 3.8-5.0 per cent – since the impacts of the global economic crisis on the real economy are worse than expected.

Bank of Thailand also said that Thailand’s economy would decelerate next year, warning banks to exercise caution when issuing credits.

Yesterday the PAD said it would continue its protests, but would contain them to Government House, which it has occupied since August 26.

The move was in response to the Supreme Court finding the PAD’s main target, ex-prime minister Thaksin Shinawatra, guilty in abstentia for violating the constitution over a conflict of interest in a land deal. He was sentenced to two years imprisonment.

Published October 16, 2008
© The Business Times