TDRI calls for greater stimulus spending in 2010

"The government need not increase its investment package of Bt1.4 trillion, but it should reallocate more spending for next year," said Nipon Poapongsakorn, president of the independent think-tank.

Globally and locally, economic indicators have recently suggested a recovery from the recession.

"However, it was not yet clear whether the recent rebound will be sustained," said Somchai Jitsuchon, research director at the TDRI.

The road to recovery both here and worldwide would be gradual, following a U-shape, with some ups and downs along the way, they said.

The TDRI projects that the economy in the base-case scenario this year would shrink 2.3 per cent, which is optimistic compared with the 4-5 per cent contraction forecast by some economists.

Somchai believes that the government's mid-year stimulus package would boost the economy to 0.8-per-cent growth year on year in the second quarter compared with the contraction of 7.1 per cent in the first quarter.

The economy next year is expected to expand 1.4 per cent. But taking into account the government's second stimulus package worth Bt1.43 trillion for fiscal years 2010-2012, Somchai sees economic growth at minus 2.2 per cent this year and plus 2 per cent next year.

The TDRI and Somchai argue that the government should save more of the budget for next year.

"More budget spending next year of about Bt200 billion may push the economic growth rate to 3 per cent, which should accommodate new graduates looking for jobs," Somchai said. According to the government's investment plan, Bt543.68 billion would be spent in the 2010 fiscal year starting in October, then Bt415.96 billion and Bt470.36 billion in fiscal 2011 and 2012.

However, the government should spend more next year and less in 2011, as the local economy would be towed by the full world economic recovery expected in 2011, Nipon said.

The current rally of stock markets worldwide including Thailand's is still 30-40 per cent below the peak of last year.

"As the Thai SET Index rises to 600 points, investors start to have less confidence about the direction of the market," Somchai said.

"Production in the US has revived for three to four months but we still need to see whether consumption will remain steady for the next five to six months," he said.

Production has also picked up in other countries including Japan and Thailand.

Home prices in key economies like the US, Japan, Germany and England are still on a downward trend. Households in the US are still trapped in high debt repayment. These indicators suggest that households are still under heavy pressure to reduce their consumption, he added.