ADB still sees 5% Thai growth for '09

"The impact on the economy would most likely intensify, substantially eroding already weak business and consumer sentiment and resulting in lower-than-forecast economic growth. Extended disruptions to the economy and to policy-making could have implications for the country risk premium (including bond spreads and credit ratings).

"The government faces several legal challenges that could lead to an early national election in the forecast period. That would likely create an economic policy vacuum for some months that could further delay the large public infrastructure projects and undermine investment. In that event, weaker than expected domestic demand could be expected to damp import growth, and the current-account outcome would be better than the baseline forecast," the ADB said in a report.

The bank has maintained its projection for economic growth this year at 5 per cent, and has lowered its 2009 forecast from 5.2 per cent to 5 per cent on the assumption that political tensions recede.  

The World Bank's semi-annual report released on Wednesday expects the economy to probably expand at the slowest pace in 11 years in 2009, as the looming global recession saps exports and domestic political uncertainty erodes confidence. Its economist said that as tourist arrivals will fall following the shutdown of Bangkok airports, tourism revenue could be in negative territory, to minus 3 per cent of gross domestic product, from 8 per cent this year.

"Investors normally want to see a stable political environment and clear policy direction before they gain enough confidence to start investing again," the bank said. With the threat of a global recession looming, export growth will probably slow to 8 per cent in 2009 from 19.5 per cent this year.

John Lipsky, first deputy managing director of the International Monetary Fund, also said yesterday that the IMF's November prediction of 2.2-per-cent growth next year was probably too high, as the financial sector has continued to unravel and the world economy has plunged further toward recession.

Global growth of below 3 per cent is considered a worldwide recession. The World Bank, the IMF's sister organisation, said on Monday it expected global growth to fall to 0.9 per cent next year.

In the ADB's report, it expects Asia's emerging economies to slow next year as the global financial crisis saps export demand and capital flows.

The external economic environment for developing Asia is likely to worsen as major industrial economies contract further, global financial conditions remain constricted and world trade growth slows sharply.

Southeast Asia's economic rise will ease to 3.5 per cent in 2009 from 4.8 per cent this year, while Central Asia's economy will grow 7.7 per cent in 2009 from 7.3 per cent this year, the ADB said.

Collective economic growth in developing Asia - a sprawling region that includes 44 economies from the central Asia republics to the Pacific islands - is projected to expand 5.8 per cent next year, down from an expected 6.9 per cent this year, the report said.

"2009 is likely to be a difficult year for developing Asia, but it will be manageable if countries respond decisively and collectively," said Jong-Wha Lee, head of the ADB's office of Regional Economic Integration.

"Swift action by policy-makers to stem both the threat to the financial systems and the real economy will allow most of the region's economies to sustain a healthy if slower expansion."

Lee said Asian countries needed to strengthen their coordination in exchange rates and fiscal policies to address the negative impact of the global financial crisis.

"Now the balance of risks has shifted from rising inflation to a slowing growth, so this can provide some margins for monetary authorities to ease," Lee said in a news conference in Hong Kong.

After years of rapid growth, China's economic gallop is expected to slow to 8.2 per cent in 2009 from 9.5 per cent this year. The outlook for China - Asia's growth engine - would be weaker without its government's recently announced US$586-billion (Bt20.9 trillion) stimulus programme to spur domestic demand.

Growth in India is seen at 6.5 per cent next year, down from 7 per cent this year.

The report said the forecasts could be undermined by sharper or prolonged global recession, persistent financial stress with volatile capital flows, further tightening of external and domestic funding, and foreign-exchange volatility.