Failure by the United States to avoid its so-called fiscal cliff of automatic tax increases and spending cuts could significantly reduce economic growth in Thailand and the rest of this region, the United Nations Economic and Social Commission for Asia and the Pacific (Escap) warned yesterday.
The impact of the spending cuts and tax rises in the US could slash growth of Thailand's gross domestic product by about 0.5 percentage point next year, according the Escap Economic and Social Survey released yesterday.
The UN report projects that regional economies with greater trade exposure such as Singapore, Hong Kong and Malaysia would be hit hard.
The "fiscal cliff" refers to an existing commitment by the US Congress to the expiration of a range of tax cuts and implementation of drastic across-the-board spending cuts of US$1.2 trillion (Bt36.7 trillion) over a 10-year period starting from the end of 2012 if the legislature does not agree on an alternative agreement by then.
"The impact of the fiscal cliff on GDP growth would be substantial in many Asia-Pacific economies, with growth expected to decline by up to 2.2 percentage points. This repercussion is of particular concern given [that] the growth prospects for the region are already below trend," says the report.
Anis Chowdhury, director of Escap's Macroeconomic Policy and Development Division, said: "It is not the most worrying issue, it's one of the issues and it can add to the problem that we already have - the European economy."
Slower economic growth in China is also expected to have an effect on the rest of Asia, including Thailand. It is expected to cut 0.29 percentage point of GDP growth in Thailand and cost about $2.1 billion this year.
Escap estimates that the Thai economy is to expand 4.6 per cent this year and recover modestly to 5-per-cent growth next year.
Average GDP growth of developing countries in the region is estimated to be 5.6 per cent this year and 6.3 per cent next year.
China is expected to rebound from its slower rate of 7.8-per-cent growth this year to 8.2 per cent next year.
Chowdhury also warned that as the advanced economies - the US in particular - continued to inject money into their economies in a process known as quantitative easing, it would cause capital inflows into this region because this is where the high growth remains.
"Short-term inflow will complicate macroeconomic policies and some countries will find it hard to export due to the appreciation of their currencies."
Individual countries will not be able to impose capital controls in isolation; countries have to sit down and discuss how to cooperate among themselves to manage the capital flows, he said.
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Article source: http://www.thethailandlinks.com/2012/12/16/us-fiscal-cliff-could-hit-thai-growth/
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