A solid financial armor could not protect Thailand against the impact of the global financial crisis on its real economy. Â Â Â Â
Despite some recent signs of improvement, real GDP is projected to contract by 2.7 percent in 2009 as the global outlook remains negative and the shock to external demand propagates to the domestic economy in a negative multiplier effect. Â Â
Thailand’s immediate prospects depend primarily on an improvement in external demand.  Â
Fiscal policy has become expansionary and will help mitigate the impact of the crisis. Â Â Â
Recent data suggests a possible bottoming out of economic activity, but it is unclear whether the pick-up can be sustained. Â Â
Market indicators confirm Thailand’s relatively strong financial position, which would be supportive of a recovery.  Â
The labor market response has been primarily through a reduction in the quantity of labor, leading to increases in unemployment and reduced number of hours worked. Â Â
The social impact of the global financial crisis is expected to be felt primarily by the urban informal sector. Â Â
Returning to a high growth rate is essential for poverty reduction as well as the sustainability of fiscal policy. Â Â
Positioning Thailand for the post-crisis environment will be vital to a resumption of robust long-term growth.
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