Kingdom advised to adapt to changes

Rector Somphob Manarungsan said yesterday that major economic powers had been using trial and error to solve their economic problems. 

“The US quantitative easing, which injected a colossal amount of money into the system, should have weakened the US dollar. However, the dollar has not weakened as much as it should have. When the United States prints a huge amount of money, countries across the world fear for their own currencies’ appreciation and buy dollars and release their currencies into markets and, simultaneously, find ways to protect the dollar, which remains their assets as international reserves,” he said.

The US dollar still accounts for 60 per cent of financial transactions across the globe. 

Japan has also hopped on the QE bandwagon to solve its economic problems, which has initially sent the yen depreciating and exports making greater headway. Exports contribute only 15 per cent of Japan’s gross domestic product. However, risks to growth remain as Japan depends mainly on the real sector. 

The weakening yen could cause prices of imported products, particularly food and energy, to go up in Japan, which depends to a great extent on imports, while savings could atrophy.

“The US QE is [creating] a colossal amount of money, which is very active in capital markets. There is more money from hedge funds and there seems to be more volatility for investment, particularly from speculators, who use information and news as weapons,” he said.

Investors should exercise caution in making decisions.

Although Thailand is a small country, it has faced problems when the global economy was sluggish and volatile as it relies heavily on exports. 

Amid the global crisis, Thailand should set a new economic strategy, promoting more of its strengths in tourism and services. The country should see the service sector making the biggest contribution to GDP as it does in developed countries, Somphob said.

“An example is China, which has announced that domestic demand would drive its economy instead of exports. China’s wages are starting to rise and that could expose it to competition from lower-wage countries like those in South Asia and Myanmar. China chose to lessen its dependence on the global economy, which has seen slowing exporting markets.”