Mounting political tensions fuel economic slowdown in Thailand

Wednesday, April 1, 2009

The Thai economy is expected to worsen if the ongoing political confrontation heats up, according to the Bank of Thailand (BoT)….

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Mounting political tensions fuel economic slowdown

Implementation of Reforms in Thailand

Recent crashes in Thailand’s GDP and export markets, plus the drop in tourism fuelled by recession and last year’s domestic political turmoil, have dispelled illusions that the country is insulated from the effects of the global downturn. Numerous indicators of economic health are hitting the red, foreign investment is evaporating, unemployment is surging, and credit lines are freezing up. Thailand’s government still says there is a possibility of positive growth this year, despite facing a rougher ride than in the 1997 Asian financial crisis as conditions infest the real economy on a broader scale.

Rapid industrial expansion and population growth have outpaced environmental management, resulting in sharply increased pollution levels (e.g. solid and hazardous waste, air, noise, and water). For example, fine particles in Bangkok’s air exceed WHO standards by 2.5 times, and other air pollutants are also causing major health impacts. Overall, it is estimated that air and water pollution costs the country 1.6 – 2.6 percent of GDP per year.

Thailand continues to reduce import tariff rates for various products.
Imports from new ASEAN member countries also have lower import duties. As part of ASEAN Integration System of Preferences (AISP), tariffs of products such as vinegar, chili, certain vegetables, wood products, and electronic switchboards imported from Cambodia, Myanmar and Lao PDR are either reduced or abolished from September 2008.

Mounting political tensions fuel economic slowdown

Many of these tax privileges were scheduled to expire at the end of this year, but now extended for another one to three years, depending on whether such tools and equipment can be currently locally produced. The government also cancels many parts and components required in assembling chasses used in vehicles that are fueled entirely by natural gas.
Externally, the trade balance in January 2009 recorded a 1,688 million US dollar surplus. Export value contracted for the third consecutive month while import fell even more rapidly. Export value dropped 25.3 percent (yoy) to 10,382 million US dollars. This was due mainly to contraction across the board except for labour-intensive industries which still expanded from gold export. Import value contracted 36.5 percent (yoy) across the board to 8,694 million US dollars. When accounting for the net services, income, and transfers surplus of 601 million US dollars from lower investment income transfer compared to the previous month, the current account balance registered a 2,289 million US dollar surplus.
External stability in Thailand was upheld by high international reserves, while trade and current account were close to balance. Regarding internal stability, inflation rose from last year in line with higher oil prices, despite a downward trend during the second half of the year. Unemployment rate remained low in Thailand in 2008 but employment started to deteriorate in the forth quarter, particularly in the production sector affected by economic slowdown.