Negative Thai growth for 2009 on the cards : Kosit

A global recession would damage exports and tourism, which contribute far more than domestic demand to the Kingdom's gross domestic product. Exports of goods alone account for about 70 per cent of GDP.

However, the economy could grow 2 per cent next year if global easing of fiscal and monetary policies were effective, boosting demand for exports, he said.

Speaking at the "SMEs Moves Through the World Crisis" seminar yesterday, Kosit said the country could experience a prolonged economic slowdown stretching beyond 2009 should such policies prove only temporarily effective.

"It is likely that the economy will mark negative growth this quarter compared with the previous one, due to a host of negative factors," he added.

Amara Sriphayak, the Bank of Thailand's senior director, said that whether the country experienced negative growth next year depended on the global economy, which had a direct impact on Thai exports and tourism.

Speaking at the same event, she said economic growth of 2 per cent next year, as projected by other bodies, was possible if the political situation were stable.

The country could not meet the previous forecast of 3.8-5 per cent because of the postponement of government spending, the People's Alliance for Democracy's recent seizure of major airports and the global economic slowdown, she said.

The central bank must evaluate how falling interest rates will impact the economy, she added.

"The closure of the airports has brought about huge losses, so economic growth will be much lower than was projected in October," said the senior director.

Amara is however optimistic that various positive factors remain intact, such as low inflation, the lowest oil prices for more than four years and falling operating costs for businesses.

Moreover, household debt has declined, public debt is only 36 per cent of GDP and international reserves are very strong, enabling the baht to be stabilised.

She suggested that the new government should hasten budget disbursement and invest in productive projects, as revenue will drop as a result of the economic slowdown.

 Monetary policy with an easing bias should help boost the economy during a period of limited scope for fiscal expansion.

According to a Bank of Thailand study, unemployment could rise to 1.2 million next year. This is under a worst-case scenario in which economic growth is zero and new workers entering the market form 2 per cent of the labour force.

Kosit urged the real sector to actively and constantly react to the situation, although it would not be that different from what has been experienced over the past six or seven months. The private sector should play a key role in driving growth while the scope to use fiscal policy is limited.

Companies can borrow to support their energy-saving measures and innovative development. But they should not borrow for speculative trading or accommodating inventory, he said.

"They should strengthen themselves and emphasise cash-flow management," he added.

Sombat Thamrongthanyawong, rector of the National Institute of Development Administration, said he believed the political situation would improve next year.

He said stability should be restored as soon as possible in order to re-establish confidence. The government should consist of a respected prime minister, ministers and economic team, as well as having clear policy-management abilities.