Contacts:
Kirida Bhaopichitr
(02) 686-8332
kbhaopichitr@worldbank.org Pichaya Fitts
(02) 686-8324
pfitts@worldbank.org
 BANGKOK, December 10, 2008 - The global economic downturn and domestic political uncertainty may continue to weigh on Thailand's growth in 2009. The World Bank now predicts that the country's economy will expand by just 2 percent next year - the lowest rate since 1998. In addition, the Bank revised its forecast on Thailand's growth in 2008 to 3.9 percent - down from the 5 percent it projected in April, said Mathew A. Verghis, the World Bank's Lead Economist for Southeast Asia. "The revision from 5 percent to 3.9 percent now just shows how much change the world, including Thailand, has seen since April," said Verghis. "The previous forecast was made before the fall of Lehman Brothers in September. It was certainly before all the street protests and the recent shutdown of Bangkok airports that had a significantly impact on investor confidence and tourism." This economic outlook is captured in a new World Bank report, Thailand Economic Monitor - a review of the Thai economy prepared twice yearly by the World Bank. The first Economic Monitor for 2008 was released in April. The second will be available for download shortly at www.worldbank.or.th. On Wednesday, journalists were given a preview to the second Economic Monitor, which included World Bank recommendations to Thailand on coping with the challenges in 2009 and beyond. Amid the political uncertainty of the last two years, Thailand has been banking on robust, double-digit export growth to drive the country's economy, compensating for the sluggish domestic consumption and private investments. With the threat of a global recession looming, robust export growth may not continue in 2009. The Bank expects world trade to decline in 2009 for the first time since 1982. "The impact of the global downtown on Thailand's real sector will be severe," said Kirida Bhaopichitr, the Bank's Senior Country Economist for Thailand. The World Bank predicts that the nominal value of Thai exports will grow by only 8 percent next year, compared with 19.5 percent in 2008 and 17 percent in 2007. In addition, both private consumption and investment are expected to continue decreasing. Fortunately, Thailand's banking sector has not been heavily impacted by the U.S.-born global crisis. Since 1997, Thailand has taken significant steps to limit its exposure to external shocks. Over the past decade, Thai regulators have also implemented many reform measures to clean up the financial sector and strengthen the health of financial institutions. As a result, the country's banking sector remains stable today despite the global uncertainty. In addition, Thailand has high foreign reserves and a low debt burden, which help to reduce its vulnerability to external financial shocks. With relatively little impact thus far from the global financial crisis, as well as relatively stable macroeconomic conditions, Thailand has room to adjust to the changing global environment. If Thailand properly manages this opportunity, it will be well placed to take good advantage when international growth resumes, the World Bank said. "Both the Thai government and private sector should take this opportunity to improve competitiveness and prepare Thailand to take full advantage of the global recovery, which is expected to be in 2011 or 2012," Kirida said. The World Bank recommends that Thailand invest; in improving public infrastructure - to attract investment and reduce the cost of logistics; in human capital - to ensure that workers have the skills needed by industries; and in research and development - to increase the value-added of Thai products. In addition, the government should continue to work on improving regional trade integration and modernizing business. These steps would reduce the cost of doing business, encouraging businesses to expand and provide jobs for the Thai people. Such improvements may not be possible without strong commitment from all sides, both in government and in the private sector. In addition, political uncertainty and unclear policy direction, if continued in 2009, will further weigh on the Thai economy, the World Bank warned. "It is crucial to encourage more private investment, but investors may still be reluctant to invest," said Verghis. "Investors normally want to see a stable political environment and clear policy direction before they gain enough confidence to start investing again."
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