Local conditions to exacerbate downswing

But Thailand will have some extra baggage: political uncertainty. At centre stage in the past six months,

political factors have weighed on sen-timent and helped push growth to a three-year low of 4 per cent in the third quarter.

Indicators for the fourth quarter, such as exports, are also rather weak, and so growth will likely be an average of 3.5 per cent for 2008.

However, the new year will be even more challenging for Thailand, said the report.

On the global economic downturn, the report said: "Our economists around the world mostly believe that we're currently in the worst part of the crisis. While this may be the case, the forecasts suggest there will be no early return to normality.

"In the US, for example, we expect the unemployment rate to continue rising into 2010. At 8.8 per cent, the rate will be the highest since the dark

days of the mid-1970s, a time of oil shocks, Middle Eastern crises and Watergate.

"There have been two deep and protracted global recessions in the post-war period, specifically 1975 and the early 1980s.

"The current downturn is likely to be as bad if not worse."

It said this crisis was different from earlier, reflecting a catastrophic collapse of confidence in the functioning of the financial system plus a threat of deflation.

"In the mid-1970s and early 1980s, interest rates rose to remarkably high levels as inflation rampaged through the world economy," it said.

"This time, policy rates in many countries and regions are fast approaching the zero-rate boundary, and in the US have already done so."

As for Thailand, the report said there was little hope for a quick solution to the political impasse, thus depressing business confidence and hitting both domestic and foreign investment.

"Additionally, rising economic and political uncertainty means that households will probably retrench despite real income gains on the back of rapidly declining inflation," the report said.

"Unfortunately, exports will fail to come to the rescue this time around,

given the synchronised collapse in demand from the developed world and growing signs of caution from the Asian consumer.

"At the same time tourism - which makes up roughly 10 per cent of the economy - is also going to suffer given recent events in the country.

"Overall, growth is expected to be fragile in 2009, with our forecast being just 0.6 per cent - the weakest since the dark days of the Asian crisis."

The report said more interest-rate cuts were in the cards, with an additional 100-basis-point easing likely during next year's first quarter.