Why This Year's Economy May Be Tougher Than in 1997

My answer is that this year we are unlikely to experience an economic crisis like the one in 1997, where the economy plummeted, resulting in negative growth due to a sudden outflow of foreign capital. However, this year the economy will slow significantly, with growth still positive but possibly below 1%. The impact will be widespread, affecting the living conditions of the majority, and for some groups, it may be tougher than in 1997. This is because the economic slowdown this year will have a broader impact, while the ability of most people to adapt or receive external assistance, such as from the global economy or economic policies, is less than it was in 1997. This means that most citizens and businesses will have to rely on themselves more. This is the point I want to discuss today.

Compared to 1997, there are three reasons why the economic impact this year on the general public should be approached with caution.

      1. The crisis of 1997 was caused by a sudden outflow of foreign capital, leading to liquidity problems  that resulted in a real estate bubble burst. The depreciation of the Thai baht due to the change in the exchange rate system caused heavily indebted businesses, especially those with foreign debts, to incur losses, leading to bad debt issues that affected the stability of financial institutions. Therefore, the crisis of 1997 was primarily a problem in the real estate and financial sectors, which then impacted the rest of the economy. However, the economy recovered quickly when exports resumed growth, foreign capital flowed back, and financial institution issues were resolved.

This year, however, the financial sector is stable, liquidity is abundant, and there is no real estate bubble burst. The economic problems this year lie in the real sector, which is very weak due to low growth rates over the past five years, resulting in low domestic purchasing power. Citizens are not spending, and household debt is high. Businesses are not investing, affecting competitiveness and employment. Importantly, the global economy is expected to slow significantly this year, and the effects of the COVID-19 pandemic will impact national income from exports and tourism, compounded by drought affecting farmers' incomes.

These weaknesses will have a widespread impact on the entire economy, affecting employment, income, and the living conditions of people in the country more than in 1997, especially for farmers, laborers, employees, small and medium business owners, and the middle class who are in debt but have no savings. A recent survey by Suan Dusit Poll reported that over 63% of the population do not have enough income to cover their expenses. The only businesses that will fare better are large companies with strong financial backing and those closely tied to government budgets or trade with the public sector.

      2. This year's economy lacks the support that was present in 1997. In 1997, the depreciation of the baht and the strong growth of the global economy helped exports recover quickly, pulling the economy back into growth. However, this year, the global economy is slowing, and the baht is not depreciating significantly, meaning there are no benefits for exports and tourism.

In 1997, the economy benefited from substantial ongoing stimulus measures that continued into subsequent years, such as the Miyazawa Initiative. In contrast, this year's annual budget is significantly delayed, limiting economic stimulus. In 1997, monetary policy had room to lower interest rates to stimulate the economy since interest rates were not near zero and household debt was low. This year, the situation is the opposite.

In 1997, those who lost their jobs or were affected by the economic crisis could return to agriculture for alternative income. However, such opportunities are now limited due to reduced agricultural land. Urban workers may have already sold their land and have no agricultural space to return to for income, compounded by drought issues. Ultimately, the crisis of 1997 occurred after several years of high economic growth, allowing most people to adapt. This year, the slowdown is happening amidst ongoing weaknesses in the real economy, and the resources that people had are nearly exhausted, limiting their ability to adapt compared to 1997.

      3. In 1997, economic issues were addressed seriously, with reforms and economic stimulus that quickly restored investor confidence, along with the return of foreign capital. At that time, the political situation in the democratic system was stable, creating confidence in policy-making.

However, currently, investor confidence in policy-making is very low because policies prioritize the allocation of benefits over serious problem-solving. There have been no economic reforms, and economic policies are inconsistent (investors describe it as flip-flopping), making it unpredictable. Even the passage of the annual budget bill has made Thailand's economy fall off the radar for foreign investors, resulting in lost opportunities for foreign capital, as evidenced by the stock market index recently dropping below 1,400 points.

      This is why this year's economy will significantly impact the living conditions of people in the country. What is concerning is that, in addition to economic problems, we may also face political and social issues compounding the situation.

Political issues create uncertainty in policy, while social issues arise from unemployment, lack of income, pandemic outbreaks, PM 2.5 dust pollution, and safety concerns for life and property due to the economic downturn. This makes the living conditions of Thai people this year challenging, stressful, requiring mindfulness, caution, and a greater reliance on oneself.

SOURCE : www.bangkokbiznews.com