Thailand likely heads for rapid turnaround : ADB

The recovery in Asia, excluding Japan, could follow a Vshape, rather than a Ushape, the ADB said.

"Emerging East Asia has entered the transition from recession to recovery, with GDP growth sourced more from domestic stimulus than a resurgence in external demand," Jong Wha Lee, ADB's chief economist, said yesterday.

Economic growth in emerging East Asia - the 10 Asean members plus China, Hong Kong, Korea and Taipei - dropped sharply in the first quarter, but early indicators suggest the pace of decline slowed during the second quarter, he said during the launch of "Asia Economic Monitor July 2009".

Growth would dip sharply this year before regaining last year's pace next year.

"It's a small Vshape," said Lee with some caution.

Solid growth would not resume without a full recovery in the advanced economies - the United States, Europe and Japan - since about 60 per cent of exports from the region went to advanced countries.

ADB forecasts emerging East Asia growing 3 per cent this year, down from 6.1 per cent last year, then expanding 6 per cent next year.

The Thai economy, which experienced a steep drop of 7.1 per cent in the first quarter, would contract by 2 per cent this year and grow 3 per cent next year.

Since the economy in Thailand is relatively open and the domestic market relatively small, it was hard hit by the global recession compared to Indonesia and the Philippines.

Indonesia is expected to grow 3.56 per cent this year and 5 per cent next year. The Philippines would expand 2.5 per cent and 3.5 per cent this and next year.

Lei Lei Song, an ADB economist, said that while Thailand's export income plummeted, the Philippines' remittance income remained strong, as its overseas workers had not yet been impacted by the global recession.

ADB sees the Japan economy shrinking 5.8 per cent this year before returning to growth of 1.1 per cent next year. The US will contract 3 per cent this year and rebound by 1.6 per cent next year. The eurozone would retreat 4.3 per cent this year before slightly advancing 0.5 per cent next year.

ADB warned that the overall external environment for emerging East Asia remains difficult and uncertain, with the recession in advanced economies continuing and global financial conditions improving, yet tight.

Major risks to the outlook include a more prolonged recession, and weaker recovery than expected in developed economies; unintended consequences of economic stimulus or premature policy tightening; falling inflation becoming deflation; and noneconomic events with low probabilities, but potentially large impacts such as the novel flu outbreak.

Lee said governments in the region should maintain fiscal expansionary policies, while central banks still have room to cut policy rates.

Prime Minister Abhisit said that while gross domestic product fell 6 per cent in the first quarter, he believes the figures in the following quarters of this year would improve.

GDP in the last quarter would bounce back 2 per cent, while public debt would be maintained at a manageable level despite additional borrowings.

"We may need less than Bt200 billion to replenish the revenue shortfall, as things (under the stimulus package) go as planned," he told a seminar on Thailand's economic future.

The government is seeking to borrow more domestically, due to ample liquidity as seen by the quick sellout of the savings bonds, he said.

Exchanging local funds for foreign currencies to cover material imports would also weaken the baht.

Finance Minister Korn Chatikavanij is taking care of the borrowing details, he said.

For longterm survival, Thailand needs to restructure its economy to place a greater emphasis on agriculture and energy, and seek additional income from tourism.

Though the focus on manufacturing will remain, it would be based on the sufficiency economy philosophy, he added.