Treasury outlook

In Thailand, financial volatility has not reached the levels in the West, and economic growth is unlikely to fall to negative figures.

Inevitably, however, there will be some impact to Thailand from the global slowdown.

In particular, several economic sectors are heavily dependent on external demand.

Exports make up around 70 per cent of GDP, and net exports make up 16 per cent.

October's export growth, according to figures recently released by the Customs Department, has declined to 5.2 per cent - the lowest in more than six years. The outlook will remain difficult as growth slows in Thailand's major markets.

Tourism is another key sector, contributing to 6.7 per cent of GDP in 2007. Tourist arrivals dropped 16.5 per cent yearonyear in September, as the impact of the global growth slowdown and local uncertainties are starting to bite.

Foreign direct investment in Thailand totalled US$10 billion (Bt357 billion) in 2007, or around 4 per cent of GDP. Trends are turning negative, and the pace of investment could decrease significantly. Applications approved by the Board of Investment for the first 10 months of 2008 have fallen 43 per cent year-on-year.

Shorter-term investment flows are also affected, as seen most clearly in equities. Net foreign outflows from the Thai stock market have totalled $6.2 billion since last November - helping to contribute to the dramatic fall in the SET in line with regional bourses.

Many of these factors - lower export income, lower investments - involve shrinking demand for Thai baht relative to the US dollar. As a result, pressure remains for the baht to continue its weakening trend.

The slowdown in external demand will also make it more important for domestic demand - whether from the private or public sectors - to act as Thailand's growth drivers going forward.