News Room - Business/Economics

Posted on 23 Sep 2009

Thai recovery lags most Asian peers

While Asian economies have mostly emerged from the global economic recession, Thailand's recovery remains weak, according to Ekachai Nitayakasetwat, dean of the business school of the National Institute for Development Administration (Nida).

 

Nida and the Siam City Research Institute yesterday presented findings of a joint study on the global recession and the impact on the G3 leading economies as well as Asian economies.

 

The downturn in the US and Europe was rooted primarily in the financial sector, with the collapse of the US sub-prime mortgage market in mid-2008 ravaging bank balance sheets and undermining the overall economy.

 

Asian economies meanwhile faced no problems with their financial sectors but were affected by sharply declining exports and external demand.

 

Researchers said that within the region, Singapore posted the strongest turnaround while Korea benefited from strong domestic demand and stimulus measures. Taiwan, while posting a similar turnaround in gross domestic product growth as Singapore, continues to be affected by relatively weaker domestic demand.

 

"Thailand and Malaysia are two of the countries posting the weakest recoveries, with domestic demand still weak. In this sense, Malaysia is doing better than Thailand," Mr Ekachai said.

 

Employment and weak domestic consumption remained problems for the economy. Policy should focus on building domestic demand through new investment. "We don't recommend using [stimulus] funds to boost domestic demand directly, given the possibility of creating a bubble" Mr Ekachai said.

 

"Right now, we face certain risks by using borrowed money to use today. These funds have to go to projects that will create wealth in the future, such as logistics and mass transit programmes that can help reduce operating costs, irrigation or alternative energy programmes that can help reduce our risk from volatile fuel prices."

 

The government plans to invest 1.45 trillion baht through 2012 on thousands of infrastructure projects nationwide under the "Thailand: Investing from Strength to Strength" programme, including hundreds of billions of baht for new mass transit, logistics, power, education and health services facilities.

 

Sukit Udomsirikul, an assistant managing director for the Siam City Research Institute, cautioned that it was too early to say that the recovery would be sustainable.

 

He said within the next six months, the overall picture would become clearer about how each country recovered based on the different amounts of stimulus applied. "We expect that Asia will definitely recover faster than Europe and the US, as regional banks are quite able to resume lending quickly. Asian countries can also rely on domestic funds as well, albeit at higher funding costs," Mr Sukit said.

 

Investors, however, should note that current valuations have climbed well beyond historical trends, with the Thai market now trading at 13 times forward earnings. Mr Sukit said the SET index, up nearly 60% for the year to date, should be trading at 600 points based on fundamentals and a price-to-earnings valuation of 10 times.

 

The Siam City Research Institute projects the Thai economy will contract by 3.2% this year, with average growth of 2.5% for 2010.