turmoil could cut '09 growth to under 3%

The economy will grow by less than 3 per cent next year if political turmoil continues and the government cannot fully function, the National Economic and Social Development Board (NESDB) said yesterday.

The think-tank projects economic growth at 2.7 per cent this quarter and bottoming out in next year's first quarter, after registering a 4-per-cent rise in this year's third quarter.

Growth is forecast at 4.5 per cent for the whole of 2008.

The agency estimates that the economy will grow by 3 to 4 per cent next year - one percentage point lower than the earlier projection - if circumstances are favourable, said NESDB secretary-general Ampon Kittiampon.

This forecast is made on the assumption that the government will be able to concentrate fully on its role of administration, that political stability is restored and that there is emphasis is on the agricultural sector to drive domestic consumption.

"The government should be able to serve in office, without political conflicts, to be able to drive the economy and restore confidence, otherwise it would have an adverse impact on tourism, production and investment," he said.

The 2009 growth figure would contribute to an unemployment rate next year of 2 to 3 per cent. The slowdown would result in about 900,000 workers losing their jobs, including existing natural unemployment of 300,000-400,000.

The projected economic slowdown would also leave only slight room for the government to pursue a budget deficit in the 2010 fiscal year, as its revenue in fiscal 2009 is likely to be Bt50 billion to B100 billion lower than projected.

The NESDB urged the government to speed up budget disbursement and the additional central budget of Bt100 billion to bolster domestic demand because exports will be hard hit by the global crisis, expanding only 4 per cent in terms of volume.

The government should hasten its already-approved mega-projects - the Red, Blue and Purple mass-transit rail lines - enhance the promotion of tourism and other affected sectors, pursue monetary policy and keep liquidity in control.

Domestic spending would help drive the economic momentum to weather the global crisis.

Ampon said the economic slowdown would shrink collection of value-added tax and corporate income taxes this fiscal year. As a result, the government must contribute about Bt100 billion from its budget for the next fiscal year into treasury reserves to comply with the Constitution.

To prevent the deficit from exceeding 2.5 per cent of gross domestic product, the budget deficit next fiscal year should be only Bt50 billion, he added.

Ampon said that even if economic growth were lower than 3 per cent next year, unemployment would not be worse than what the Kingdom had experienced in the past.

During the 2001 dot.com crisis, when the economy grew 2.2 per cent, the unemployment rate was 3.3 per cent, representing 1 million to 1.1 million workers. The figure was 4.4 per cent - or 1.2 million to 1.5 million workers - when the economy contracted by 10.2 per cent in 1998.

He said the government should allocate the budget into rural areas via projects such as the Small Medium Large scheme and water resource development, as it could help drive domestic demand and serve as the country's safety net.

The agricultural sector has been a key factor in driving the economy for consecutive quarters, expanding 8.6 per cent and 9.9 per cent, respectively.