PM Abhisit might have infalted economic expectations

Given this gloomy outlook, Abhisit should have sent out a more moderate or realistic line, like this:

"We all are in bad times. The global financial system is plagued with toxic assets. Global demand is going to disappear. The crisis will hit Thailand hard. Don't expect that the government can do much to help you.

 "We need to save all our reserves. We need to bring debt under control. We won't be better off under the new government. But we will manage to survive. My government will manage conservative economic policy and lay down a stronger political and institutional foundation, so that when this global financial storm is over, Thailand will be one of the few countries to emerge as a stronger nation."

As an open economy, with exports making up more than 60 per cent of gross domestic product, Thailand cannot avoid adversity. It can no longer rely on exports to drive growth like in the past. Domestic demand has also been running at half of its potential due to the political uncertainties.

Many economic houses have downgraded the Thai economic growth rate. DBS Global Research sees flat growth this quarter and the first quarter of 2009. Growth will only pick up slightly in the second half of 2009, bringing the overall growth rate to 1.50 per cent compared with 4.4 per cent in 2008.

But UOB of Singapore's view is more depressing. It predicts growth of 0.50 per cent due to the uncertain political situation and continuing global financial crisis. Trade, tourism and manufacturing will be hit, helping to propel unemployment to 3.2 per cent next year, from 2.2 per cent this year.

The four key export sectors - autos, electronics, basic metals and electric appliances, which make up 40 per cent of all exports - are highly cyclical. Unemployment will be centred in these sectors, with the Federation of Thai Industries projecting the number at 1 million-1.5 million.

However, Thailand is more fortunate than most countries in that it is a food surplus country. Its economic fundamentals remain strong, from foreign-exchange positions to corporate debt levels, because policymakers have learned from the mistakes of the last crisis of 1997-98.

Macquarie Research's "Equities' Outlook 2009" report, for instance, is rather bullish on Thailand, forecasting growth of 2.50 per cent in 2009.

'The Thai economy is vulnerable to the global slowdown via exports, tourism and foreign direct investment. However, the country's balance sheet is robust, with foreign reserves accounting for more than 40 per cent of GDP, public sector debt at 38 per cent of GDP.

"Further, banks' balance sheets are strong and the financial system is domestically funded and has continued to function normally despite the global credit crunch," it said.

Abhisit, during the Parliamentary address on government policy, should fine-tune his message so that it reflects the global and Thai economic realities.

The situation will be bad. The prime minister can't do much to improve the situation. He won't give away money easily. He won't bail out big companies. He will merge all weak banks.

In short, Abhisit can only prevent things from sliding into crisis by moderating economic policy while hoping for the best.