Open economic policy will hit exports
Even well-diversified away from major economies like the slowing United States and troubling Europe, Thailand could see its exports, one of its major growth drivers, to be hard hit in the years to come due to its open economy. What should the nation do to
Standard Chartered Bank (Thai) forecasts Thai exports to grow 5-15 per cent, given some months could experience the lower range of 5 per cent. In light of global economic downturn, Thailand's private consumption and private investment could also deteriorate due to lack of confidence.
"We are revising down next year's GDP growth from the previous estimate of 4.5 per cent," due to problems of the US and European economies, said Supavud Saicheua, an economist at Phatra Securities.
Currently, Thai exports account for 69 per cent of the nation's gross domestic product, compared to 64 per cent in 2000, according to the Ministry of Commerce and the Bank of Thailand. Product mix is more cyclical. Most of which are rubber, vehicles, petroleum, plastics, electronics and electrical appliances and rice.
"Pressure to balance the (drivers for) Thai economy is increasing," Usara Wilaipich, senior economist at StanChart said at its Economic Update last week.
Even though Thailand exports more of its products to Asean and China, many of them are used to be produced in those countries for re-exporting to major economies, particularly the US and Europe. About 22.7 per cent of Thai exports go to Asean countries and 11.0 per cent are destined to China, according to the BOT and StanChart Research.
The Thai export-oriented economy will likely track the global downturn, given the US and European structural debt problems, likely economic slowdown in China.
Thailand needs to make adjustment in its strategy, policy and economy as the United States and Europe may not see their economies go back to the pre-subprime-crisis level until 2012 and the world economy will likely experience below-trend growth until then, Usara said.
"Government spending is not enough. Now is the chance to make larger public investment. If the government does not rush in making investment, (Thailand) may miss the opportunity while the world economic power is being in transition from the West to the East," she said.
Prior to the Asian financial crisis in 1997, Thailand's public investment accounted for 11.5 per cent of the nation's gross domestic product and declined to 5 per cent in 2010.
The nation is required to invest much more in its transportation and logistics systems to enjoy future benefits from a much larger market of 600 million people when the Asean Economic Community (AEC) materialises in 2015.
"Now, we may not feel the changes of Asia, but business strategies in Asia are increasingly fiercer and competition continues to rise," and logistics costs was the key to trade, Usara said.
Public investment should be made in the nation's basic infrastructure like roads and utilities to help shore up the economy amid slowing exports, Supavud said.
The StanChart economist urged the Thai government to rush in making public investment as a major economic driver to help shore up the economy in the next four to five years as an attempt to avoid its likely sharp slowdown, given potentially sustained below-trend global growth that could drag down the Thai export-oriented economy.
The monetary side also needs to give a boost. The monetary policy should also be spared to help alleviate pressure from the global economic problem that could adversely affect exports, private consumption and private investment.
The Bank of Thailand's Monetary Policy Committee has raised the policy rate nine times since July 2010 to 3.50 per cent which many economists expect a pause at this level in its next meeting on October 19 until the end of next year, given the likely global economic downturn.
