Domestic demand is the key to stay afloat: Escap analyst
Thailand has been urged to boost domestic demand, in order to stay afloat amid the waves of external shocks that are likely to continue in the years to come.
Hamza Ali Malik, chief of the Economic and Social Commission for Asia and the Pacific’s (Escap’s) macroeconomic policy and analysis section, noted that Thailand and other export-oriented countries in the region were all suffering as they have become closely tied with the value chain in China.
"The key is to boost domestic demand and try to lean away from some external demand," he said at a press briefing on Monday. Given high household debt, Thailand should instead focus on increasing wages to spur economic growth.
Nearly 70 per cent of Thailand’s gross domestic product is contributed by exports. This year’s export growth is expected to remain in negative territory, for the third year in a row. The outlook for external demand is not bright.
According to the United Nations Conference on Trade and Development (Unctad), global trade last year expanded by only 0.3 per cent because of a significant decline in commodity prices. A mild increase in trade is also expected for 2015.
Worse, the agency expects a persistent global slowdown in the years to come due to financial imbalances.
According to Unctad’s "Trade and Development Report 2015", a global slowdown is imminent, as many developed countries have failed to regain the momentum they enjoyed before the 2008 financial crisis.
Worse, several years of accommodative monetary policy has resulted in huge capital inflows to developing economies, pushing up debt and ass et bubbles in those countries. External inflows to those economies peaked at 6.6 per cent of gross national income in 2007. Now, they are bracing for massive outflows as global investors anticipate a rise in US interest rates and a continuing drop in commodity prices.
"Managing the persistent volatility of financial short-term flows requires an internationally coordinated policy response," Unctad secretary-general Mukhisa Kituyi said at a press conference in Geneva. "With developing countries contributing over 60 per cent of global growth since 2011, the knock-on effects of recent emerging-market difficulties could be widely felt."
To avoid "secular stagnation" or zero economic growth, the agency urged rich countries to increase public expenditures and boost domestic demand. For long-term sustainable global growth, they also need to combine monetary expansion with fiscal expansion and wage growth, and be mindful of international spillovers of their policies.
