Escap predicts 4.5% Thai GDP growth in 2012

Economy December 10, 2011 00:00

By Wichit Chaitrong
The Nation

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Thailand was the hardest hit among Southeast Asian countries that faced unprecedented flooding this year, reducing economic growth to 2 per cent, but the country should bounce back next year thanks to post-flood reconstruction, according to the Economic a


The devastating floods this year are estimated to have caused cumulative production loss of about US$6.3 billion (Bt195 billion) – 0.9 per cent of the combined gross domestic product of Cambodia, Laos, the Philippines, Thailand and Vietnam – according to the report released by the United Nations Economic and Social Commission for Asia and the Pacific (Escap).

Thailand was hit the worst, with flooding projected to lower the country’s GDP for the year by 1.3 per cent, compared with flood-caused GDP reductions of 0.3 per cent each in Laos, Burma and the Philippines. However, post-disaster investments for economic recovery are projected to restore economic growth in these countries over 2012. Thailand’s growth rate is expected to be 4.5 per cent next year.

Nagesh Kumar, chief economist of Escap, said that because of a relatively low public-debt level, Thailand had fiscal space for investment to restore infrastructure and build dykes to prevent future flooding. Thailand’s current public debt is about 40 per cent of GDP.

He expects the Bank of Thailand and other central banks in the region to ease monetary policies to boost their economies that were also affected by a slowdown in exports.

The Asia-Pacific region is facing the challenge of coping with a sharp deterioration in the global environment. Slowing growth in developed economies will affect the region through trade and finance channels, he said.

Growth in the developing economies of Asia and the Pacific is forecast to slip from an estimated 7.2 per cent this year to 6.6 per cent in 2012.

The region, however, will continue to drive the global economy next year and will remain the world’s fastest-growing region as it is in a position to sustain its economic dynamism thanks to strong macroeconomic fundamentals, according to Escap.

“If serious pressures on growth performance were to materialise, the strong budgetary position of many countries would allow the enactment of short-term fiscal stimulus measures, as some countries have already begun doing,” Kumar said.

He said domestic demand, boosted by fiscal economic stimulus packages, would make up for the shortfall of export demand from Europe, the United States and Japan.

However, some countries – such as Vietnam – facing high inflation have the challenge of balancing growth and inflation, as more spending by the government could add to inflationary pressure.

The region has been affected by the threat of double-dip recession in advanced economies as massive capital outflows have caused regional currencies to weaken, he said.

He urged these countries to adopt appropriate capital controls to discourage short-term flows and encourage long-term capital inflows.