Published on December 11, 2007
What will Thailand's economic growth be next year? Already, it has been widely recognised that the Thai economy has bottomed out. The way forward requires a recovery. The new government will benefit from this cycle because it will be starting from the bottom. Although the Surayud government has done virtually nothing in terms of economic management, Thailand will still enjoy an economic growth rate of at least 4.5 per cent this year. This reflects the country's strong resilience.
There will be five major risk factors: high oil prices, the strong baht, the strength of domestic recovery, the stability of the new government, and problems from the US sub-prime loan issue. All countries will get hit by higher oil prices, which seem to be driven by sentiment rather than fundamentals. Were oil prices to stay at US$100 (Bt3,373) a barrel, Thailand would have to find way to reduce its energy imports. Its manufacturing industries would have to pass on the higher cost to buyers, both at home and abroad.
The baht is trending upward. For now the Bank of Thailand appears to have brought the situation under control by intervening in the foreign-exchange market quite fiercely to curb the baht's rise. Implicitly, the central bank has almost re-pegged the baht by revising its foreign-exchange management strategy. For the time being, there is no risk of it doing so because to curb the baht rise, the banking authorities need only to print more baht to buy up the US dollar, while issuing bonds to mop up the excess liquidity.
Over the past four months, the baht has achieved a degree of stability in the Bt33-Bt34/US-dollar range. The stability of the baht, as a result of foreign-exchange intervention, has raised the country's foreign reserves to more than $100 billion.
The strength of the domestic recovery will be recognisable. The new government will focus on restoring confidence, both among consumers and investors. It might take some more time before consumers' confidence returns to "normal". But investment, both from the public and private sector, will act as a catalyst for recovery.
But we expect the new government to start working very early on to make sure money is injected into the system as quickly as possible. The budget will go both to investment and to grass-roots spending to make everybody happy. If the election were to take place again, incumbent politicians would be expected to allocate budget resources to benefit their constituents.
Thailand's growth prospects are reflected in investor sentiment. UBS Securities (Thailand), for instance, has forecasted that the Thai stock market will grow 30 per cent between now and the end of 2008, driven by domestic recovery. The banking, telecom and property sectors will benefit the most from this domestic recovery, and UBS predicts economic growth next year will be at least 5 per cent.
Politics might not pose as serious a problem as many fear. Although the People Power Party might emerge with the largest number of seats after the December 23 election, it might not be able to form a coalition government. Thai politics has yet to overcome its divisions. The People Power Party won't be allowed to return to power, at least for now, as long as the military remains lurking in the background. The likelier prospect is that a coalition government will formed by the Democrat Party, the Chart Thai Party, the Puea Pandin Party and the Ruam Jai Thai Chart Pattana Party.
There might be some political jitters. Parliament might make granting an amnesty to the banned 111 former executives of the defunct Thai Rak Thai Party its first order of business.
Instability might become the fixed image of Thai politics. Yet, this may be the reality we will all have to work with and learn to manage.
As for the US sub-prime problems, banking authorities have been keeping a close watch on developments in the US and its implications in the global financial markets and global economy. Thailand is not likely to be adversely impacted by the US sub-prime debacle because the Thai financial system is not exposed to the mortgage-backed securities issued by the US institutions in any significant way. Thailand is more likely to be hit by the indirect impact caused by global financial volatility.