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The mass red-shirt rally has little negative economic impact

The mass red-shirt rally is not causing significant damage to the country’s economy, Bank of Thailand governor Tarisa Watanagase said on Tuesday.

Aishwarya Gupta

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The mass red-shirt rally is not causing significant damage to the country’s economy, Bank of Thailand governor Tarisa Watanagase said on Tuesday.

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Red rally has little economic impact

Thailand government’s first stimulus package, may have helped limit the negative multiplier effect on household consumption.

The medium-term outlook is sobering, with growth expected at 3.5 percent in 2010 and likely remaining below potential for the next three years. Because the Thai economy is largely dependent on final demand in advanced economies, a return to pre-crisis rates of economic growth (a full recovery vs. a rebound to pre-crisis levels) will require a combination of (a recovery of demand from advanced economies and a rebalancing of the sources of growth to reduce Thailand’s dependence on demand from advanced economies. Neither process is likely to be swift. Recovery from a financial crisis is a lengthy process that involves the rebuilding of balance sheets, and the IMF estimates that half of the losses in the financial system in advanced economies are yet to be recognized.

Shipments to emerging East Asia already surpassed the 2008 peak level but those to EU, Japan and ASEAN are slow.

Red rally has little economic impact

Despite the rebound, Thailand’s export recovery is still subject to several downside risks. A recent export pickup in East Asia benefits mainly from coordinated and massive policy responses in G-3 economies and China that have boosted their demand for imports, and inventory re-stocking worldwide that followed a swift and large de-stocking in early-2009 as orders fell less than production. These two factors are temporary, as governments have to unwind injections to maintain fiscal discipline and companies resume their normal stocking levels. In fact, data shows that US inventory-to-shipment ratios for computers, electronic products, and electronic appliances started to rise again in August and September, thus leading to weaker new orders. This likely adds pressure on Thailand’s electronic shipments to the US in the coming months.

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