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Thailand's third quarter gross domestic product growth shrank 2.8 per cent year on year. This was somewhat less than the analysts' consensus expectation of minus 3.3 per cent. Still, it was a big improvement from the minus 4.9 per cent in the second quarter. The National Economic and Social Development Board has attributed the improvement in economic conditions to government consumption, household expenditure and investment.

Indeed, government consumption grew 4.7 per cent year on year, supported by a higher fiscal disbursement rate of 21.1 per cent year on year and higher employee compensation. Private consumption also posted a lower negative growth of 1.3 per cent compared to 2.2 per cent in the second quarter of 2009. The improvement was due to better purchasing power, falling unemployment, low inflation and interest rates.

Total investment also fell at a slower rate of 6.3 per cent as compared with minus 10.2 per cent in the second quarter and minus 15.9 per cent in the first quarter. Continued improvement in public investment (8 per cent) through the acceleration of disbursement in central and local government and state enterprises was the key driver. Private investment dropped 12.2 per cent in the third quarter as compared with minus 16.1 per cent posted in the second quarter. The improvement was due to renewed machinery and equipment import in the agricultural and food industries.

Manufacturing production fell 5.9 per cent in the third quarter, as compared with minus 14.4 per cent in the first quarter and minus 8.7 per cent in the second quarter. The improvement was due to production recovery in several industries such as raw materials/capital and technology.

Looking ahead, many research houses have predicted the steady recovery of the Thai economy. UOB KayHian has forecast that the Thai economy will turn positive at 2.7-3.2 per cent in the fourth quarter. The major driver of the improvement in GDP growth will come from public spending under the government's stimulus programme.

However, both the government and the private sector must adopt a cautious stance over the prospects for the recovery path ahead. Since the Thai economy is integrated with the global economy, its health depends on the performance of the major economies such as the US, Europe and Japan. Although China is increasingly taking in Thai exports, it is not enough to revive growth to a normal level. Demand in the US and Europe remains weak. Japan has just entered yet another round of deflation, with falling prices and growing pressure for the new government to stimulate the economy even more.

The spectacular rise in global financial assets could lead to another bubble. Investors have fled the US dollar for stocks and commodities, leading to a surge in those prices. They have also borrowed the low interest US dollar in carry trade to invest in higher yield assets. But experts, including Nouriel Roubini, a professor from New York University, have warned that this bubble in the making could trigger another financial crisis.

Amid this volatile global situation, Thailand must stay resilient and adopt a cautious stance by staying the course rather than plunging into speculative investment.