The meeting of Council of Economic Ministers has agreed to maintain the current interest rate as proposed by the Bank of Thailand, as the United States monetary policy has not changed.
Private investment in Thailand has been subdued in the past three years due to uncertainty about the political situation.
In 2006-2008 investment grew by an average of 2.7 percent a year (compared with real GDP growth of 4.3 percent on average), down from 14.8 percent during 2003-2005. This earlier retrenchment of investment has dampened the impact of the financial crisis, most notably on foreign direct investment (FDI). While little new FDI is expected, there has been no rush to exit from foreign investors. Growth of private investment in 2008 came mainly from Thai investors, as gross FDI inflows declined from 2007 levels. Private investment is expected to contract 5 percent in 2009 as capacity utilization remains low (around 50 percent). However, growth could resume in the fourth quarter on the back of increased public investment. Public investment has been sluggish in Thailand since the 1998 crisis, but is expected to increase in 2009 given increased political stability and the political imperative to respond to the slowdown in the export sector.
The share of public investment in real GDP averaged only 5.7 percent during 2004-2008 compared more than 10 percent before the 1998 crisis. In 2008, public investment contracted by nearly 5 percent as a result of political uncertainties, which delayed investment decisions. Public investment is projected to grow at 7 percent in 2009 as the implementation of large infrastructure projects step up.
The thai government is implementing two sets of stimulus measures, one of 1.5 percent of GDP targeted at FY09 (announced in January) and a recently-announced plan for FY10-12 (fiscal years run October-September) that anticipates deficits as high as 5 percent of GDP. As a consequence, government consumption is expected to increase by nearly 10 percent in 2009. The current account registered a small deficit in 2008, and is expected to turn to a surplus starting in 2009 supported by a steep decline both the price and volume of imports – especially fuel. The small deficit registered in 2008 was mostly due to the increase in imports and reduced exports and service receipts in the second half of the year. The financial account is expected to register modest net outflows in 2009 as portfolio investments continue to show outflows , while FDI net inflo will continue to be positive, but at a lower level compared to the past few years.
Thailand’s economic growth is falling by more than earlier expected amid a sharp and continuing decline in global trade.
The contraction would be Thailand’s first since 1998, said Mathew 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 Thailand and 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.
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