He said it usually took three to six months to feel the impact of currency fluctuations.

"This explains why January exports showed huge growth though the baht strengthened sharply against the greenback in that month. But from March onwards throughout the year, the effect will be evident," he said.

Out of concern for the export sector, the Bank of Thailand in December imposed a capital-reserve measure which has been gradually relaxed. Since March it has also intervened in the foreign-exchange market to slow down baht appreciation.

However, BOT senior director Pongpen Ruengvirayudh said on Friday that the baht had remained strong as foreign capital flowed into the stock market over the past week. On that day the baht peaked at Bt34.91 before closing at Bt34.90-Bt34.93.

The baht on March 22 rose to a fresh nine-and-a-half-year high at Bt34.65 to the US dollar. When the capital-reserve measure was imposed, the baht was about to breach the Bt35 level. The continued strengthening is due to the growing size of Thailand's foreign-exchange reserves, which as of March 30 reached a record high of US$70.9 billion (Bt2.4 trillion).

Against the strong baht, Thailand's export income reached $10.488 billion in January, up 17.7 per cent. Thailand targets to reap an annualised export income of $145 billion this year, a 12.5-per-cent increase from last year.

"The main reason why export growth has been sustained is that Thai exporters have been gaining market share in regions and countries other than the US [such as the EC, Japan, China and the Middle East]," Tisco Securities explained. "As a time lag of two to three quarters exists before the EC and Japan follow the US economic cycle, higher exports to these markets have compensated for a slowdown in the US."

Exports are the main engine driving the Thai economy. Lower export income would exacerbate the Thai economy, which is experiencing a drop in private investment and domestic spending. Last week the World Bank also showed grave concern over Thailand's economic growth, which was revised downward from 4.6 per cent to 4.3 per cent, the lowest level in the region.

The Bank of Thailand, however, is optimistic that private investment and consumption will pick up in the second quarter, thanks mainly to the accelerated budget disbursement and lower interest rates. It is also confident that the election date announced by Prime Minister Surayud Chulanont will boost confidence.

Now all eyes are on the Monetary Policy Office's meeting on Wednesday, expecting it to cut the policy rate as sharply as possible to buoy the sagging economy. Several financial houses are expecting it to cut the rate by 50 basis points. The policy rate has been cut by 25 basis points twice in the past three months.

Tisco Securities commended the central bank for doing a good job in cutting rates, but its analysis showed that it would take 9-12 months before monetary policy had a significant impact on the economy.

"We do not think the economy can afford to wait that long," the securities company said. "This is where the government's fiscal policy could come into play. Fiscal policy has a higher growth-multiplier, so this would be a more effective tool for reviving the economy within a short period of time."

Except during a financial crisis, government spending (general expenditure and public investment) moves in tandem with raw-material and capital-goods imports. As raw materials and capital goods account for almost 70 per cent of total imports, this implies that stronger government spending will encourage more imports which in turn will reduce surpluses.

"Government spending during the current fiscal year appears to be short of the target with only 34.2 per cent of the total budget disbursed during the first five months of the year, compared with 38.5 per cent in the same period last year.

"However, we note a big upturn in spending has occurred recently. The spending rate rose to Bt191 billion in February compared with an average of Bt107 billion in the first five months of the 2007 fiscal year. If the government can sustain this disbursement momentum, the full-year disbursement rate could reach 85-90 per cent. Besides injecting money directly into the economy, government spending should also revive consumer and investor confidence," the securities company said.

On cue, the Finance Ministry last week urged 17 state enterprises to speed up their spending after finding out that they had disbursed only 14 per cent of their full-year target in the first five months of the current fiscal year, which started last October.

Still, that may not be enough in the eyes of economic guru Virabongsa Ramankura, who expressed concern last week over the sluggish economy throughout this and the next year. He said the economy would grow less than expected, partially due to the change of heart of the current government in implementing policies.

"Reports that this and that concession will be revoked spook investors and financial institutions," he said. "Banks are worried about making loans while investors withhold fund inflows. Imports show slow growth from last year while export income is hurt by the strong baht. There is no single positive sign for this and next year, not even the signing of the Japan-Thailand Economic Partnership Agreement."