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Can Asia, through aggressive monetary easing and fiscal stimuli, save economic growth across the globe? The world has been suffering from a global slowdown for a while now, and Asia is not large enough to pull the rest of the world out of its severe slump. Plus, Thailand is also struggling to stay afloat.

"Uncertainty remains in the macroeconomic environment. The twin drivers of growth - exports and consumption - are both slowing down, with further downturns over the next six months at least," said a recently published report from ABN AMRO Bank.

"Deflation is becoming an increasing possibility, which could see asset values spiral downwards. We believe excess inventories will take time to work through before demand pressures can build again, but if output flounders, then lower prices and corporate profits could squeeze wages, forcing households into even more dire straits."

This year will see the world economy suffering from a contraction. ABN AMRO estimates the gross domestic product growth for the G4 nations - US, Europe, United Kingdom and Japan - at minus 1.5 per cent. Considering that the G4 makes up the bulk of global GDP, with Asia contributing almost half of the remainder, Asia's importance in the global economy is bound to increase. At the moment, Asia's growth is forecast at 3.6 per cent - barely enough to stave off worldwide recession.

The International Monetary Fund has predicted 1.9 per cent global growth in 2009. Perhaps this is too optimistic. In fact there is a possibility that global "growth" might register a flat zero per cent. If this were to be the case, we would all be facing some very tough times.

The question is whether this trend toward recession will turn into a depression. In a depression, we will witness asset deflation, with de-leveraging raging on. De-leveraging is a process in which investors liquidate their assets for cash in order to meet their debt obligations. Liquidation would create a downward spiral for prices. The de-leveraging process has already taken place in some developed markets. At the same time, massive liquidity pumped into the financial system by the central banks is failing to boost demand because of a widespread lack of confidence. There might be ample money, but banks are not lending, investors are not investing and the consumers are not consuming.

The end result will be a further downward spiral.

That's the reason why John Maynard Keynes continues to thrive. The top economist advocated government spending to boost demand when the economy stopped functioning as a result of the downward spiral created by the depression. Most of the major developed markets have come up with huge fiscal stimulus packages to prop up their economies, apart from aggressively cutting interest rates and stepping in to bail out financial institutions.

As president-elect Barack Obama gets ready to take the oath of office on Tuesday, the world waits with bated breath to see if this young leader is able to pull the United States out of the economic disaster and lead the rest of the world toward renewed growth.

Still, the economic and financial problems may be far too big for Obama, or even the world, to handle.

Last year some US$14 trillion (Bt489 trillion) was wiped out of the financial markets. Let's assume that half of this represented bank or margin loans, because most of the investment in the financial markets is leveraged. For the world's financial institutions to return to their pre-crisis level, some $7 trillion in fresh capital is needed.

So far, the American financial institutions have raised less than $1 trillion in capital. So where will the other $6 trillion or so come from to be ploughed into the black hole of the global financial system? Does the world have this money?

Buying out bad assets will not resolve the problems of the financial institutions. Recapitalisation is the only way to restore the health of the global banks' balance sheets. If recapitalisation does not take place, then more and more big banks will end up failing this year and the de-leveraging process will continue.

As a small country, Thailand cannot run away from the world's problems. Finance Minister Korn Chatikavanij will face a very challenging task as he tries to prevent this de-leveraging from hitting Thailand. The government's financial measures, which aim at stimulating consumption, are welcome in the short term. Korn will have to make sure that disbursement gets underway quickly and effectively. If the money does not get into the hands of target groups soon enough, the government will be in some serious trouble and it will become even more difficult to re-boost confidence.

But Korn will have to move further to bring down the commercial bank lending rates in order to help Thai businesses and borrowers. He is right to have pointed out that the spread of the banks - the differential between the borrowing rate and the savings rate - is far too high at 4 to 6 per cent. Banks in other countries are living on a spread of 1.5 per cent. So the Thai banks are in relatively good health.

If disbursement from the stimulus package is effective and interest rates really do go down, Thailand will manage to stay afloat during this global turmoil and avoid negative economic growth.