• 
• 

The reduction of average price in the stock exchange by half has affected the consumption behaviour of Americans, who are spending much less. Private consumption in the US has continuously reduced since the beginning of the year, and the US economy has contracted since the first quarter. The economic situation of the US is deteriorating still.

The reduction of private consumption has evolved into a reduction of production, especially in October when industrial production in the US decreased markedly and unemployment increased apace. This indicates that the US economy will contract further. Spending will decrease and affect the exports of trade partners overseas.

  The European Community and Japan are experiencing economic problems similar to those of the US and are in recession. Economists forecast that G3 economies will contract 3 per cent in the fourth quarter of this year and another 1.8 per cent in the first quarter of next year.

However, the even more disturbing fact is that such economic problems are already spreading to countries in East Asia. Taiwan's exports fell in the third quarter, especially of IT products, which were down 31 per cent when compared with the previous quarter. The IT industry in Taiwan is now unhealthy.

Singapore's exports have also fallen, including exports of IT products, and as the Singaporean economy is highly dependent on international trade, the reduction in exports has led Singapore into recession since October. Even for Korea, which has very good trade relations with the US, it appears that export orders in October fell 3 per cent.

China, which had been growing rapidly, also has slowed down from 11.6 per cent in the first half of the year to around 8 per cent in the second half. It is noticeable that the GDP of China in Q3 expanded 6.4 per cent from Q2, and Q4 GDP is expected to expand just 4.1 per cent.

As a consequence, regional trade within East Asia will decrease. Thailand has benefitted a lot from regional trade. Even when exports to the G3 countries slowed down, Thailand could still depend on exports to East Asian countries and had good growth rate for exports from Q1 to Q3 of this year.

However, in Q4 export orders from countries in East Asia have slowed down markedly and are expected to slow further. It is expected that exports to East Asia will fall further in the coming year, since the G3 economies are expected to contract until the middle of next year and drag down the growth of economies all over the world, which will probably not recover fast after reaching bottom, as there is no extra factor to make them do so; recovery will be gradual in accordance with the normal economic cycle.

Thailand, therefore, has to depend on domestic demand as growth engine for the economy next year: private investment, private consumption and government expenditure.

As for private investment, the ongoing political conflicts in the country have seriously and negatively affected it to the extent that it will take quite some time before the confidence of investors is restored. At the same time, foreign investors are having serious financial problems back at their headquarters. Naturally, they do not now have any appetite for investment overseas.

We are, therefore, left with only two growth engines, which are private consumption and government expenditure. The government is now trying to speed up investment in mega-projects where there is public demand for them, and efforts are being made to speed up budget allocation.

Furthermore, the government plans to increase the budget deficit by another Bt100,000 million, ending up with a deficit of Bt349,000 million. Caution should be exercised in allocating this additional Bt100,000 million to maximise the benefit to the people at large. It is not yet clear how the government will do this. At first it was mentioned that it would be earmarked to ministries for various purposes; then it was to be allocated it as SML budget to districts all over the country; now ministers are mentioning increase s in government officials' salaries and handouts to unemployed graduates.

Handouts to create popularity should be avoided since they will not benefit anyone as much as investment, which can be used for the construction of reservoirs and water transport, the rehabilitation of natural watersheds, the provision of clean water for household consumption and the construction of hospital buildings, centres for the treatment of disease and much-needed school buildings.

These projects would create jobs which could take care of lay-offs from industries affected by the world economic crisis. These jobs would generate income which would boost private consumption, and at the same time we should have the resulting infrastructure.

As for SML budget, if it is not strictly observed, the possibility exists that it will be dispensed inefficiently and not much will go on investment.

As for private consumption, the expected economic slowdown and the expected increase in unemployment will naturally reduce it.

The only hope is the price of agricultural produce. Even though this will inevitably decrease from last season, it is expected to be high enough to generate profit for farmers, leaving them net income to boost private consumption.

What worries me is the implementation of government policy on crop prices. It has tried to keep them level but is not succeeding. The Ministry of Commerce did not sell at the right moment, and pledged so much more than the market price that it attracted a record stockpile, which hurt the market price, and the decision to sell when the price was low hurt the market price more, which was total mismanagement. Then the focus turned to pledging for other crops such as tapioca at a much higher rate than the market price. This may inflate the stockpile and hurt the market price here too. I would call the attention of the deputy prime minister and ministers overseeing economic issues to preventive measures on crop prices. If they are pushed down to a level where farmers cannot make an adequate profit, farm-sector incomes will create a drag on private consumption, one of the economic growth engines.

Until next Monday.