Country Report Thailand October 2009

Outlook for 2010-11

• Thailand will remain politically unstable in 2010-11, as there will be no resolution of the country's protracted and multifaceted power struggle.
• As well as having to contend with opposition groups, the prime minister, Abhisit Vejjajiva, may struggle to retain the support of his partners in the coalition government and his patrons in the palace and the military.
• The government will support the economy through fiscal stimulus, but will face constraints owing to rising public debt. The Bank of Thailand (the central bank) will wait until there are signs of recovery before raising interest rates.
• After contracting by an estimated 4.3% in 2009, its worst performance for ten years, real GDP will expand by 3.3% in 2010 and by 4.1% in 2011, thanks partly to global economic recovery.
• Consumer prices will rise again in 2010 following a year of deflation in 2009, but inflation will not return to the high levels seen in 2008 owing to the weakness of the labour market, which will damp down wage increases.
• The current account will remain in surplus in 2010-11, but exports will not return to the annual growth rates of almost 20% witnessed in the pre-crisis years, when the West could be counted on to purchase Thai goods.

Monthly review

• On the third anniversary of the coup, on September 19th, a protest movement, the United Front for Democracy Against Dictatorship (UDD), held another mass rally in the capital, Bangkok.
• Despite the weak fiscal position and concerns over the build-up of public debt, the government is proceeding as planned with a US$40bn stimulus programme known as Thai Khem Khang (Strong Thailand).
• In early September the central bank revised its inflation target. It now aims to keep core year-on-year inflation between 0.5% and 3%. The previous target was 0-3.5%.
• Despite a recent improvement in economic indicators Thailand's economy remains weak, with consumption and investment yet to return to positions of strength.
• Capacity utilisation continues to edge upwards, having plummeted to an 11-year low in February. According to the central bank, industrial capacity utilisation reached 61.6% in July.
• Merchandise export revenue reached a nine-month high of US$12.9bn in July, but on a year-on-year basis export takings were down by 25.7%, according to the central bank.