Authorities too optimistic about bluecollar layoffs: bank

Job losses this year are likely to be worse than during the 1997 financial crisis, said an economist from Standard Chartered Bank (Thai).

Exports and tourism, which had been the country's safe haven after the 1997 Asian crisis, will take the biggest blow this time, while banking and real estate, which took the brunt of the destruction 10 years ago, will be only slightly scratched.

Usara Wilaipich, senior economist from Standard Chartered Bank (Thai), said bluecollar workers in tourism, exports and agriculture would be suffering from job insecurity and unemployment this year. These three sectors will shed much more than a million workers.

Whitecollar workers, who were the main victims of redundancy 10 years ago, will escape relatively unscathed this time around.

The 1997 crisis wiped out 900,000 jobs - sending the unemployment rate from 1.5 per cent to 5.8 per cent - mainly in property and construction, as well as in banking. However, with the baht weak, manufacturing, exports and tourism were a good buffer for the property sector, absorbing laidoff workers.

Now, manufacturing and tourism, which respectively employ 6 million (up from 4 million 10 years ago) and 2.4 million (up from 1.6 million 10 years ago), will be devastated. Exports support about 2.2 million workers, half of whom are in the supply chain. Exports are expected to fall by 5 per cent this year due to dwindling orders.

"Don't look at the percentage as it will be distorted, just look at the real number of jobs lost … Employment in construction and property, which might not be hit hard by the current crisis, won't grow and may not be able to absorb workers from exports and tourism. So, I'm not sure which sector will be able to soak up the unemployed this time," Usara said.

Earlier, both the Bank of Thailand and the Finance Ministry toned down the dire predictions of the private sector, whose view on unemployment was more pessimistic at much more than 1 million.

Finance Minister Korn Chatikavanij last week said job losses were expected to reach 700,000750,000 this year - including 300,000 already off the payroll - if gross domestic product grows by 2 per cent, while the central bank said job losses this year would not be worse than during the 1997 crisis.

"I expect both the fiscal and monetary policies of Thai authorities to be quite aggressive," Usara said.

She forecasts GDP to grow 1.3 per cent this year, starting with a contraction of 1.8 per cent this quarter before turning around to expand 0.3 per cent next quarter.

"There might be a surprise on the downside," she said.

While fiscal stimulus is expected to kick in next quarter, the central bank is seen as cutting its policy rate by 50 basis points at its Monetary Policy Committee meeting next month, and by 25 basis points at each of the MPC's two meetings next quarter, bringing the rate down to only 1 per cent. The rate could go even lower in the third quarter.

External demand will fall dramatically with the United States, Europe and Japan sliding towards a deep recession, while China is expected to grow only 6.8 per cent this year, much slower than its average of 11 per cent over the past 10 years.

John Calverley, head of North American research at Standard Chartered Bank, said the US economy had likely shrunk as much as 7 per cent last quarter and would continue contracting in the next two quarters.

Callum Henderson, head of foreignexchange strategy at the bank, said the US dollar is expected to be strong over the first half, due mainly to deleveraging and funds repatriation, but will depreciate in the second half and keep declining for years afterwards due to the recession.

The baht is expected to sink to Bt35.28 against the greenback this quarter and Bt37.00 next quarter before rebounding to Bt36.50 in the third and Bt35.50 in the fourth quarter.