thegreglowe.com

By GREG LOWE
IN BANGKOK

THAILAND’S economy contracted for the first time in a decade when growth in the fourth quarter of last year plummeted to -4.3 per cent. And this year’s GDP growth is likely to drop to -1 per cent, the National Economic and Social Development Board (Nesdb) said yesterday.

Slumping demand in key export markets, domestic political turmoil and declining tourist revenues caused quarterly economic growth to turn negative for the first time since 1999. GDP fell to -4.3 per cent in Q408, or 2.2 trillion baht (S$94 billion), down from 3.9 per cent in the previous quarter, according to Nesdb’s quarterly economic growth review published yesterday.

Last quarter’s seasonally adjusted GDP fell to -6.1 per cent, with 2008’s economic growth coming in at 2.6 per cent, down from 4.9 per cent the year before.

Shrinking output from the non-agricultural sector, the biggest contributor to the economy, which fell to -5 per cent, led the overall decline after the manufacturing sector slowed to -6.8 per cent, from 6.1 per cent in the third quarter. Agricultural products bucked the trend with a 1.8 per cent growth, down from 9.6 per cent in Q308.

Nesdb revised its 2009 GDP forecast to minus one per cent, from 3-4 per cent earlier. Finance Minister Korn Chatikavanij said Thailand now faces a ‘protracted recession’, and that the country should ‘prepare for the worst’ as it is expected to be in economic downturn for more than two years with any turnaround unlikely before a global recovery begins.

Nesdb’s findings are the most recent in a line of reports which paint an increasingly gloomy economic outlook for Thailand. Recent Ministry of Commerce figures showed deteriorating global demand caused January’s exports to plummet to an 18-year low, putting hundreds of thousands of jobs in jeopardy.

Exports, which account for 60-70 per cent of Thailand’s GDP, contracted by 26.5 per cent year-on-year in January to US$10.49 billion.

However, Thailand’s trade balance remained in surplus at US$1.4 billion after imports – which are mostly export-related – collapsed faster than exports, down 37.6 per cent y-o-y to US$9.1 billion. This will dampen the effect of plummeting international trade on the country’s GDP, said Sarun Sunansathaporn, economist at KGI Securities (Thailand). ‘In the first quarter we expect the trade account to swing to a surplus from a deficit of US$334 million in the same period last year. This should be a positive contribution to Thailand’s GDP.’

Falling international trade can only have negative consequences, said economists at Phatra Securities. ‘While the fall in imports is GDP-positive because it increases the trade surplus, it also implies significant cutbacks in investment which would dim growth prospects this year and in future years.’

To cope with the crisis, the government must focus on tackling the rising unemployment, rather than boosting domestic demand, as this year’s job losses may be worse than during the 1997 Asian financial crisis when the number of unemployed surged by one million, said Usara Wilaipich, senior economist at Standard Chartered Bank (Thai). The Thai government has fiscal room for manoeuvre as its debt-to-GDP ratio is relatively healthy at 30 per cent, compared to other regional economies such as the Philippines’ 60 per cent, Malaysia’s 45 per cent, and OECD countries’ average of 50 per cent. ‘This gives the government a wider capacity for using fiscal stimulus to address the problem,’ said Ms Usara.

Published February 24, 2009
© The Business Times