In a new analysis after the military coup, United Nations economists predicted today that Thailand’s gross domestic product (GDP) growth could reach 4.7 per cent next year if the new government maintains political stability, but would only reach 3.1 per cent in the case of instability.
“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 per cent 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 the 19 September coup which toppled the Thaksin government. They note that the Thai stock market remains steady, the Thai baht is stable, and contagion to other regional markets is limited.
But although the macroeconomic forecast remains favourable, 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 per cent, with inflation increasing to almost 10 per cent. The baht would depreciate by more than 20 per cent, reaching almost 46 baht for $1.
“The next few months will be closely watched by investors,” Mr 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.