The announcement of Thailand’s largest current account deficit since before the Asian financial crisis has sparked unease among analysts but they are still largely upbeat about economic prospects this year.
Central bank figures released last Monday showed a 942-million-dollar current account deficit in January, the highest in nearly eight years.
The figure dominated headlines as commentators nervously harked back to the cause of the 1997 crash.
An interest rate rise of 25 basis points to 2.25 percent followed on Wednesday as the central bank acted to ease inflation fears, but the stock exchange plunged 2.4 percent on the heels of fleeing investors.
"The Thai economy has already recovered but we should still be in alert mode," Finance Minister Somkid Jatusripitak was quoted as saying in the Nation newspaper Saturday.
"If we don’t help each other, bad news in the form of the current account deficit could occur again," he warned.
An import surge, a downturn in tourism after the December tsunamis, and high oil prices were the main causes of the swing to the third and largest current account deficit since the crisis.
But government officials expect tourism to bounce back by year-end, while most analysts agree that imports have been productive and timely.
Pat Phattapongse, head of research for KGI Securities, told AFP the deficit should be expected since one of Asia’s best-performing economies is entering a fresh growth phase.
"This year we’re moving away from a demand-driven economy to supply-driven," he said, referring to the shift from the consumption-led growth created by Prime Minister Thaksin Shinawatra’s populist policies to investment-led growth.
"Clearly, this is going to have ramifications for the current account deficit and trade balance," he said, noting that good fourth-quarter results among companies "shows that the economy still has some steam to it."
Pat was also unfazed by the stock market’s bearish reaction.
"If you look at the graph, since November it’s been a straight line up without any real pullback, so I think it was a healthy correction."
Vincent Milton, managing director of international agency Fitch Ratings, was similarly sanguine about the year ahead, as Thaksin begins his second term after an overwhelmingly election victory in February.
"The general picture on the corporate side has been strong growth earnings over the last 12 months and that’s expected to continue on the back of capacity expansion and new investment," Milton said.
The government is tipping 5.5-6.5 percent growth for 2005, compared to last year’s 6.2 percent and 2003′s 7.8 percent.
Analysts are still watching for hiccups in the economy, fearful of possible plunging consumer confidence in the wake of the tsunamis as well as potential fallout from slowing global markets.
The waves killed at least 5,395 people in Thailand and sent the crucial tourism industry into a tailspin, with international arrivals dropping 18 percent.
"We’re worried that the first half or quarter of this year, post-tsunami, you may have a bit of a shockwave through consumer confidence taking some wind out of consumption," KGI’s Pat warned.
Export growth meanwhile depends on what happens in China, Europe and Japan. "We see those markets softening," he said.
Exports grew 11.6 percent in January year-on-year, compared to a 23.0 percent average for 2004. Imports jumped 33.6 percent year-on-year, compared to 27.4 percent for 2004, leading to a 1.47 billion dollar trade deficit.
Sompop Manarangsan, an economics lecturer at Bangkok’s Chulalongkorn University, said more risk factors were now at play for the economy.
He said the government’s decision to begin dismantling a 13-month-old subsidy on diesel would add inflationary pressure and risk further interest rate rises.
"From now on interest rates are going to be a crucial factor in causing some adverse affects on the Thai economy," he said.
Sompop said export growth prospects were dim, while domestic consumption was likely to be constrained by a drought putting pressure on agricultural production and dragging on growth.