UN Experts Predict Thai Growth at 4.7 Percent

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Tang Li, Arab News

SINGAPORE, 1 October 2006 — While much of the focus of the recent military coup in Thailand has been political, United Nations economists predict that Thailand’s gross domestic product (GDP) growth could reach 4.7 percent next year provided the new government maintains political stability. In the event of political instability GDP growth would only reach 3.1 percent. A healthy growth rate would help Thailand to achieve its poverty reduction goals before its target date of 2009.

“In our ‘best-case scenario,’ we expect public spending to increase under the new interim government and play a key role in boosting GDP growth,” UN Economic and Social Commission for Asia and the Pacific (UNESCAP) Executive Secretary Kim Hak-Su said.

“Thailand’s macroeconomic fundamentals remain strong. We expect growth to be robust at 4.5 percent this year. Exports are strong and inflation is falling. The relatively flexible exchange rate regime and high foreign exchange reserves have contributed to these good outcomes,” he added.

As of today UNESCAP economists see no significant impact on the economy from Sept. 19 coup which toppled the government of former prime minister, Thaksin Shinowatra. They note that the Thai stock market remains steady, the Thai baht is stable, and contagion to other regional markets is limited. Thailand’s foreign reserves remain at healthy $60 billion and as Thailand’s finance minister noted a day after the coup, “Inflation will be contained at around 4.7 percent, in spite of higher cost push from higher oil prices.”

But although the macroeconomic forecast remains favorable, uncertainty remains for the Thai economy’s short-term outlook. Under a “worse-case scenario” of political instability, UNESCAP predicts that in 2007 economic growth could fall to 3.1 percent, with inflation increasing to almost 10 percent. The baht would depreciate by more than 20 percent, reaching almost 46 baht for $1.

“The next few months will be closely watched by investors,” Kim said. “The interim government will have a heavy responsibility to maintain economic stability and investor confidence in the economy. In the short-term the new administration will need to outline policies regarding the investment climate, especially macroeconomic policies and economic governance measures.

“It will be very important for the new interim government to provide timely clarification on government spending, particularly on the infrastructure investment component of the fiscal budget,” he added.