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The Thai economy has been heading downward since November last year. In the final quarter of 2008, all the economic figures were dismal, from the collapse of manufacturing and exports to economic growth. Taking into account the fourth-quarter performance and the January economic data set, DBS Research Group, in its report yesterday, revised downward Thailand's economic growth in the first quarter of this year to minus 5 per cent.

"Given the 24 per cent annualised drop in output in 4Q08, this path would imply full year average growth of minus 3.5 per cent in 2009, down from minus 1.7 per cent forecasted previously," DBS said.

At no time in recent memory has the projection of Thai economic growth been subject to constant revision, almost on a weekly basis, by different research houses and think tanks. Amid the global financial market meltdown, it is very difficult to assess Thailand's growth, or lack of growth, prospects.

The Abhisit government started off its tenure in December last year with a conservative estimate of economic growth at between 0 to 2 per cent. It adopted the line of the Bank of Thailand, which maintained a pretty wide projection range. Tarisa Watanagase, the Bank of Thailand governor, has let it slip that there is a possibility the Thai economy will experience negative growth this year.

The National Economic and Social Development Board has forecast a growth rate of minus 1 per cent to 0 per cent this year. The other day, Bangkok Bank issued a gloomier forecast of minus 2 per cent to 0 per cent growth. None was more pessimistic than Dr Olarn Chaipravat, the economic guru, who earlier gave his forecast of a stunning minus 4 per cent. Olarn's forecast is now similar to DBS Research Group's minus 3.5 per cent.

With this sharp swing in economic forecasts, it is no longer possible for business managers, traders or policy-makers to look at the gross domestic product alone as the ultimate target in their planning. They are in fact better off trying to minimise the risks associated with the economic downturn rather than trying to look for opportunities for growth.

The downside risks for the Thai economy stem from policy responses to the financial sector mess globally, as well as from a possible material inventory overhang. Upside risks stem from the low base of the output levels, and from the potential for bigger fiscal stimulus.

Regarding the downward price pressure, it is likely that Thailand will see flat prices for most of the first half of this year. In the second half, prices might correct on the back of higher commodity prices, though demand in general remains flat. This will eventually leave Thailand in a state of slight deflation. The Bank of Thailand is likely to respond by further cutting its interest rate from the current level of 1.5 per cent.

Amid the global financial turmoil, the Thai baht has also been heading downward. It is now trading near its lowest level in more than two years as foreign investors continue to sell Thai equities. Yesterday morning the baht fell 0.1 per cent to Bt36.17 against the US dollar. Other regional currencies are also weakening against the greenback, with the South Korean won slumping 18.8 per cent so far this year and the Indonesian rupiah declining 9.7 per cent.

In the meantime, the sharp fall of the baht and other regional currencies is due to the broad strength of the US dollar. We couldn't have said it any better. The de-leveraging process is still going on. In this process, capital is flowing back to the US financial centre to repair the balance sheets of companies and banks. Insofar as this de-leveraging process continues, the US dollar will continue to be a safe haven.

At the same time, global adjustments are underway. US consumers are cutting back on their consumption. This has drastically reduced US imports and resulted in higher US savings. Export-led countries such as Thailand are now witnessing a collapse of their exports. Lower export proceeds result in fewer dollars in hand for the exporters to sell. For this reason, the US dollar has appreciated against most other currencies although the US is the centre of the financial crisis.

With less export surplus, which attracts foreign direct investment and portfolio inflows, Thailand and other export-led economies have no other choice but to prop up domestic demand. They are now digging into their budgets, via either deficit financing or outright utilisation of the international reserves, to spend on infrastructure investment. Already, Japan and Singapore have signalled that they will be using reserves to stimulate economic activities.

In the end, the US crisis is also the crisis of Thailand and other countries. We're all in the same boat of global capitalism.