BANGKOK, April 7, 2009 - Thailand’s economic growth is falling by more than earlier expected amid a sharp and continuing decline in global trade. As a result, the World Bank has revised its forecast for the country’s gross domestic product in 2009 to a 2.7 percent contraction, down from the 2 percent growth projected in the previous forecast.
The contraction would be Thailand ’s first since 1998, saidMathew A. Verghis, the World Bank’s Lead Economist in Bangkok. It would follow a decade of growth averaging nearly 5 percent each year.
“Countries like Thailand that have been dependent on manufacturing exports are most affected,” said Verghis, who covers Thailandand four other Southeast Asian countries. The World Bank released its latest forecasts for Thailand and other economies in East Asia and Pacific on Tuesday.
The global economic slump shut down what has been, for the past three decades, the main engine for Thailand’s economic growth: exports. As a result, the manufacturing sector has been badly hit. The Thai government estimated that one million or more workers would lose their jobs this year due to the slowdown. In January, the unemployment rate stood at 2.4 percent of the total workforce – a full percentage point higher than the 1.4 percent recorded in December 2008.
“With unemployment on the rise, the number of people living under the poverty line will likely increase,” saidFrederico Gil Sander, the lead author of the April 2009 edition ofThailand EconomicMonitor, the World Bank’s bi-annual review of the Thai economy.
“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,” he said.
In January, the Thai government announced an economic stimulus program totaling 117 billion baht ($3.34 billion). The program included a host of short-term measures to boost household consumption and assist lower-income families. The government is now preparing a second stimulus package worth 1.6 trillion baht ($45 billion). Among other initiatives, this package focuses on public investment in infrastructure projects, which the government hopes will help create 1.6 million jobs.
“The infrastructure investments, if implemented, will help generate growth and improve Thailand’s competitiveness,” said Verghis. “However, it is worth noting that financing for infrastructure has been available for the past few years. What has suppressed investment was not funding, but rather political and institutional constraints.”
While the impact on the real sector has been larger than expected, the global crisis has not shaken the Thai financial sector. The World Bank attributed this to Thailand’s strong macroeconomic fundamentals; low external debt coupled with high international reserves; and a sound financial sector, which has undergone a series of reforms following the 1997 crisis.
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.
Thailand also must be prepared for changes in the global economic landscape that will come after the crisis subsides, said Senior Economist,Kirida Bhaopichitr. The World Bank has recommended that the government and the private sector work closely together to explore new markets for Thai exports and increase the value-added content of Thai products. Investment to improve public infrastructure and the skills of Thai workers will also be instrumental to Thailand’s success, she added.
“It is also important that the government develop a comprehensive social protection framework to ensure that, in the future, it will be easier to increase assistance where needed and avoid duplicative programs,” Kirida said.
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