The European debt turmoil is likely to escalate and split into the United States, which could finally impede the Thai economic growth, according to former finance minister Veerapong Ramangkul.

He said the Thai economy in the second half of this year will likely expand at a similar pace with that in the first half with the export sector remaining a key driving force, but tourism sluggishness will deter the overall economic growth rate.

“What is worrying now is the financial crisis in Europe, which I believe is hard to be addressed. The US economic recovery is not strong and stable enough to help the European economy weather this crisis. Under the circumstances, I don’t think Thailand’s gross domestic product will increase to 6 per cent as targeted by the government for this year,

The crisis may escalate and spread into the US. The euro is likely to continue weakening and stay at 1 US dollar in equivalence in the six months ahead.It should be also noted that China decided to make the yuan’s exchange rate more flexible because it wanted to help shore up the US and European economies.

via European debt crisis to impede Thai economic growth, says ex-finance minister.

Thailand needs to improve its productivity and investment climate

However, measures for the medium term that will enable Thailand to poise itself for higher and sustainable growth as the global economy recovers in the next few years are no less important. While coping and mitigating with the impact of the financial crisis in the short-run, it is equally important for all stake holders in Thailand to prepare for a recovery in global demand and ensure sustainable growth thereafter. The global economy is projected to recover over the next few years and, thereafter competition will intensify.

Debt Crisis Long-Term Stability Strategies
Euro Debt Crisis Requires Long-Term Stability Strategies

Thailand should take the opportunity during the next few years to strengthen its productivity and competitiveness so that when demand resumes, Thailand will be in a position to jump the band wagon of global recovery. To do so requires serious efforts of all stakeholders in Thailand including the government, private sector, and academia. As these improvements take time, for Thailand to achieve them in time for the projected global recovery, the efforts must start right away. In order to ensure Thailand’s competitiveness in the near future, Thailand needs to improve its productivity and investment climate. Experience from countries that have managed to increase productivity and rise up the value chain such as South Korea and Taiwan have shown that productivity improvements at the national level are achievable with a concerted efforts by the private sector, government, and academia.

“With the exception of Viet Nam and Cambodia, our Southeast Asian banking system outlooks are stable,” said Deborah Schuler, senior vice president and regional credit officer for Asia Pacific financial institutions at Moody’s.

“The region’s banks are well positioned to cope with the Basel III capital and liquidity requirements, thanks to their strong capital levels, traditional banking franchises and customer deposit funded loan portfolios,” Schuler said.

Basel III refers to a new set of capitalisation and banking standards. It calls for stricter requirements that are meant to ensure the health of an economy’s banking sector.

To solve the root problem and to prevent future crises, individual EU Member States need to improve their fiscal and structural policies and the EU as a whole needs an “economic governance framework. This framework  should include a “permanent EU sovereign debt crisis resolution mechanism”, such as a European Monetary Fund, “a co-ordinated approach to macroeconomic rebalancing”, and “enhanced synergies between the EU budget and Member States’ budgets”, in order to supplement sustainable fiscal consolidation, says the resolution.

When Member States develop their economic policies, they should take account not only of possible effects at national level, but also of those for the EU and in particular the EMU Member States.

The long-term strategy should also tackle “competiveness gaps” among EU Member States, which today cause internal macroeconomic imbalances both within the Euro area across the EU as a whole, they add.

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