While Thailand’s economy formally entered recession as of the end of the first quarter of the year, with exports falling sharply, many experts and officials believe the worst is over and recovery is within sight.
If so, it would be more than welcome as the Thai economy recorded its worst results in a decade in first three months of 2009, with GDP falling by 7.1% compared to the same period last year, according to figures released by the National Economic and Social Development Board (NESDB) on May 25. This drop follows on from a 4.2% decline in the last quarter of 2008, technically putting the country’s economy into recession for the first time since the Asian financial crisis of 1997-98.
The NESDB figures showed that exports – which represent around 70% of GDP – declined 19.9% in the first quarter. Household consumption was also down, easing 2.6%, while there was a 15.8% decline in investments.
Thailand’s manufacturing sector has been one of the worst affected segments of the economy, with output falling by 14.9% in the first quarter of the year, coming on top of a 6.7% drop in the preceding three months. Much of this retreat has been caused by the decline in export demand, with levels of overseas sales falling for each of the last six months.
The NESDB has predicted that the economy will contract by 3.5% this year, with drops in the second and third quarters before a return to positive territory in the last three months of 2009.
In releasing the figures, Ampon Kittiampon, the secretary-general of the NESDB, mixed optimism with a note of warning, saying, “Thailand’s economy should have bottomed out this year in the first quarter if there is no further domestic political unrest.”
If the government’s $41bn stimulus package was implemented as planned in the last quarter of the year, there should be a solid turn around in the economy, he added. “Once public investment is renewed, it will attract private and foreign investment,” said Ampon.
In an address to the nation on May 23, Prime Minister Abhisit Vejjajiva said the global economy should recover earlier than previously predicted, and that Thailand would follow that trend. “I will try to make the economy in the last quarter positive,” he said. “We’ll launch the second economic stimulus measure through investments in the third quarter this year.”
Thailand’s central bank has also indicated that the situation could be about to improve. Though leaving the gate open for future interest rate cuts, the Bank of Thailand announced on May 20 that it was leaving its key rates unchanged, issuing a statement saying that there were signs of stabilisation in the economy.
While it is to be expected that state officials would be talking up the economy, a number of leading figures in the private sector share their positive outlook. One of them is Santi Vilassakdanont, the chairman of the Federation of Thai Industries, who believes the corner has been turned.
“Orders have started to come back,” he told the Bloomberg news agency on May 25. “The worst is behind us and things should get better now.”
Not all are so confident, with Siam Commercial Bank economist Pornthep Jubandhu saying negative trends in manufacturing, construction and consumption could persist into the second quarter, while a further slowdown in the tourism sector could have a ripple effect throughout the economy.
“Most small and medium-sized enterprises are associated with the service sector and generate a large proportion of employment. A bearish tourism sector could increase the jobless rate and depress consumption even further,” Pornthep said in an interview with the Bangkok Post on May 26.
There are some factors in Thailand’s economic mix that could dim the light at the end of the tunnel if they come into play.
Foremost of these will be if the government has difficulties persuading the Constitutional Court to sanction an executive decree to allow the state to raise $11.5bn worth of loans to offset falling revenue and fund part of its stimulus programme. Failure to borrow the additional funding would strike a blow to the economic package, as well as to investor and consumer confidence.
With exports one of the main driving forces of the economy, Thailand’s recovery will also be dependent on an improvement in the health of its overseas markets. To a large degree, the short-term prospects for the Thai economy will depend on reassuring tourists that the country is a stable destination and on the government’s pump-priming efforts being allowed to make an impact free from political turmoil.