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The pain of 2009 returns

Publication Date : 03-12-2013


Thailand's economic outlook for 2014 could be dismal. The degree is difficult to gauge right now, but the pain could be as bad as what we experienced in 2009.

Four years ago, the Thai economy was buffeted by external and internal factors. The collapse of Lehman Brothers in September 2008, whipped up a global financial storm that hit demand for Thai exports. Internally, the 2008 shutdown of Suvarnabhumi Airport, the gateway for 70 per cent of visitors to Thailand, spooked foreign investors.

According to Bank of Thailand data, private investment contracted 12.8 per cent in 2009 on the previous year. Consumption also dropped 1.1 per cent, despite picking up later in the year due to stimulus measures.

Meanwhile, the value of exports dropped by 13.9 per cent to US$150.9 billion. As investment dropped, fewer capital goods were imported, and imports also declined by 24.9 per cent to $131.5 billion.

In the service sector, tourism also suffered. In the first half of 2009, the global downturn saw the number of foreign tourist arrivals fall by 16.1 per cent from 2008. Moreover, political turmoil here prompted many Asian countries to issue travel warnings for Thailand. Despite improved economic conditions in key traveller countries and the cooling of political tempers, Thailand's visitor arrivals in the year showed a 3 per cent contraction from 2008. Hotels in 2009 suffered an average occupancy rate of only 49.2 per cent, compared with 56.2 per cent in the previous 12 months.

The overall result was a 2.3 per cent contraction for the economy - the first in a decade.

Now it looks like we are set for a repeat.

The International Monetary Fund in October projected world economic growth for 2014 at 3.6 per cent. Though that's an improvement from the 2.9 per cent this year, it is worth noting that 0.2 of a percentage point has already been chopped off the initial 2014 forecast. This indicates persistently low demand for Thailand's exports.

Meanwhile, prolonged political protests - especially violent ones - could hurt both domestic consumption and visitor arrivals.

A credit-card company executive reports that customers' spending has dropped significantly in the past two weeks compared with the same period last year. This is no surprise given that a large chunk of cardholding Bangkokians have joined the protests. Vendors at protest sites take cash, not plastic, and some of the food there is even free.

Meanwhile four downtown shopping malls closed on Sunday as the protests were stepped up, further cutting credit spending this month.

On the tourism front, as of yesterday 34 countries had issued warnings against visiting Thailand. In 2009 - despite no fatalities in the 2008 riots - hotels witnessed slow business in the first half. This year, the airports have been spared but violent protests could bring a similar impact. Hotels in the southern province of Krabi, which are normally full in December, are currently suffering occupancy rates of 70-80 per cent.

A Moody's Investors Service's report released yesterday was timely. The rating agency warned that the protests will likely undermine investor confidence and detract from an already fragile growth outlook for 2014.

Although the protests have mostly been peaceful, three people have so far been killed and over 100 injured. "Prolonged or escalating protests will adversely affect foreign investment and tourism, and exacerbate delayed public infrastructure investment, which will weigh on Thailand's future growth in 2014 and beyond. While Thailand's credit fundamentals still compare favourably with similarly rated peers, weaker growth will negatively affect the fiscal balance and contribute to rising debt ratios," Moody's said.

The warning followed another from Fitch Ratings. Praising Thailand for strong growth fundamentals, Fitch said that political instability had retarded progress on infrastructure development - and thereby constrained Thailand's growth.

Even without political turmoil, the outlook is not so bright. Many finance houses expect an improvement in Thai GDP growth next year, but that is on top of a low base this year. Thailand's growth momentum is slowing, with only 2.7 per cent growth in third-quarter real GDP, down from 5.4 per cent in the first quarter. This contrasts with South Korea, Malaysia and Singapore, which all reported stronger third-quarter annual growth rates.

So, what does the future hold for Thailand?

The current situation looks grave, with concerns both at home and abroad. Only mutually acceptable solutions to our domestic turmoil, which also reassure the rest of the globe, will assure us of a brighter future.


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