StanChart fears 1-1.5% hit to GDP if crisis drags on

Speaking at StanChart’s sixth “Economic Update in Bangkok”, its Bangkok-based senior economist Usara Wilaipich said the actual losses could be a little higher because of disruptions in automotive and electronics supply chains and delivery.
“It’s also peak season for exports now,” she said.
“This flooding will likely have an impact on GDP growth in the fourth quarter of this year, with large effects to exporters.”
Given the losses suffered by farms in the Central region, prices of agricultural products could increase after the floods subside.
“Inflation could rise temporarily because of the short cycles of agricultural products, and the Bank of Thailand is unlikely to react” to this short-term price effect, Usara said.
StanChart expects Thailand’s headline inflation to average 3.7 per cent this year and 3.0 per cent next year.
The central bank projects initial costs from the flooding at about Bt60 billion, or 0.6 per cent of GDP.
The National Economic and Social Development Board says the damage could cost the economy about Bt80 billion to Bt90 billion or 0.8-0.9 per cent of GDP.
Current consumer behaviour – emptying shelves in department stores for flood relief and hoarding – might boost consumption somewhat, Usara added.
The flood crisis could cost Thailand billions of baht in damage to factories and property.
“Restoration after the flooding could help increase consumption and investment,” which could slow down next year because of lack of confidence after the likely global economic slowdown, Usara said.
“Thai investors and Thai consumers are quite sensitive to situations overseas,” she said.
Thai exports will likely see a slowdown next year after expected declines in demand from the developed economies and China, whose economy is expected to cool down in 2012.
“We cannot avoid financial crises in the West. If China slows down, that will unavoidably affect our exports.
“In Asia, a part of the supply chain is to serve local demand and another is for products for re-export,” Usara said.
StanChart forecasts Thai exports to grow 5-15 per cent next year.
“Some months could see the exports growth by 5 per cent,” Usara said.
The bank estimates Thailand’s real GDP growth at 3.2 per cent this year and 4.8 per cent next year.
Given the risks of the global economy seeing sustained below-trend growth for several years, Thailand should boost public investment to drive its economy in the next four to five years.
In Asia, competition among businesses has been increasing, and Thailand could lose opportunities if it does not make investments in logistics and transport to facilitate trade and services.
“What will allow [us] to win or lose in selling goods is logistics costs,” Usara said.
Before the 1997 financial crisis in Asia, Thailand’s public investment accounted for about 11.5 per cent of its GDP.
It had declined to 5 per cent of GDP by 2010.