Deputy Prime Minister Suthep Thaugsuban on Tuesday gave a green light to Asian leaders to bring their own armed bodyguards to the Asean+6 summit when it resumes in Phuket.

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Government allows armed bodyguards

Real GDP in Thailand growth slowed to 2.6 percent in 2008 from 4.9 percent in 2007. In the first three quarters of 2008, output grew 5.1 percent year-on-year thanks to robust exports and investment. Starting in October, however, the sharp decline in global demand, amplified by the domestic political crisis took a toll on growth and real GDP contracted 4.3 percent year-on-year in the fourth quarter. While Thailand’s financial sector was mostly insulated from the financial crisis, the real sector was impacted quickly, and export volumes contracted in October for the first time in six and a half years.

However, significant downside risks remain should political instability resurface in Thailand and the global decline proved more protracted or steeper than now expected

Inflation has been easing with the slowdown in economic activity and the decline in oil and food prices. After peaking at 9.3 percent in July 2008, 12-month inflation fell to only 0.4 percent in December, although the average for 2009 at 5.5 percent was roughly double the level in 2007. Core inflation averaged 2.3 percent in 2008, within the central bank’s target of 0-3.5 percent. In January and February, prices declined 0.3 percent from the first two months of 2008, but this has been driven primarily by fuel prices, with other prices still increasing year-on-year. Given the increased excess capacity in the economy and the continuing decline in global oil and food prices this year, inflation in 2009 is expected to be negligible.
Export volumes are projected to contract 16 percent in 2009 after a 6 percent expansion in 2008. Exports of services, more than half of which were accounted for by tourism receipts (around 8 percent of GDP) will also be heavily impacted by the slowdown in arrivals from advanced countries (40 percent of total tourists). Accordingly, exports of services are projected to contract by 6.6 percent this year. Import volumes should contract more than exports due to businesses running down inventories and a contraction in overall investment and consumption of imports. Net foreign demand will nevertheless contribute negatively to growth since in real terms exports represent a much larger share of GDP than imports.
External debt service ratios are manageable at 5.4 percent of Thailand’s exports overall. Total external debt was under 60 percent of international reserves at the end of 2008. The Thai financial sector is basically sound and has been largely insulated from the immediate impact of the global financial crisis, but increasing pressure from the slowdown on companies will be passed to banks. The average capital adequacy ratio amounted to about 14 percent at end-2008. Net NPLs declined during 2008 to 2.9 percent of total assets. While this trend is set to reverse during 2009, banks appear to have enough room, at least in the short-term, to cope with higher NPLs. There is adequate liquidity in the domestic banking system, but banks have become more cautious given that credit quality is expected to deteriorate. Credit expanded by 9 percent in 2008, initially due to higher demand for working capital, then as a consequence of large domestic firms switching from foreign to domestic borrowing. Credit growth slowed in January, and the ratio of loan to deposit decreased to 86
from 90 percent, suggesting some room for future loan growth.

Thailand’s economic growth is falling by more than earlier expected amid a sharp and continuing decline in global trade.

With unemployment on the rise, the number of people living under the poverty line will likely increase. Employment opportunities for workers in the urban informal sector, such as contract workers in manufacturing, in construction, and in tourism are shrinking, and it is unclear if they can go back to agriculture. As the government plans another economic stimulus program, considerations should be given to measures that will boost employment and specifically target these workers.

So far, the Thai government has enough capacity to finance the first economic stimulus package and the three-year public investment plan. In the face of shrinking revenues, the government estimates its budget deficit to be about 525 billion baht, or 6 percent of Thailand’s gross domestic product, in the fiscal year ending September 2009. It is also seeking loans from domestic and external sources to shore up the budget and support planned investment.

However, the World Bank cautioned that, for public debt to remain manageable, budget deficits will need to be reduced over the next few years and growth needs to return its long-term average, highlighting the importance of using the crisis as an opportunity to enhance growth prospects.

Private consumption in Thailand and investment also grew by more in 2008 than they did in 2007, despite the sharp increase in food and fuel prices. On the other hand, public consumption and investments in real terms have contracted in the first three quarters as a result of slow disbursement rates amidst political instability and slow project completion as raw material prices rose sharply.For the year 2008, the Thai economy decelerated from the previous year, particularly in the last quarter where global economic downturn and internal political unrest adversely affected manufacturing production and tourism. Nonetheless, farm income still expanded well from higher major crop production and price compared to the previous year.The political unrest in the last quarter of 2008 will continue to dampen tourist confidence into at least the first half of 2009. In addition, the slow down in growth of the economies from which a large number of tourists come to Thailand, such as EU and Japan, will reduce tourist receipts next year. With the slow down in exports capacity utilization is expected to fall; which will negatively affect private investment.Household consumption growth will also continue to be dampened as income growth will be slower next year with employment increasing minimally, and consumer confidence falling, even though inflation will be significant lower at only around 2 percent compared to 6 percent this year. Significant downside risks remain to the growth projection should political instability heighten, the global economy decelerate faster than projected, and implementation of the fiscal stimulus is delayed.

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