Thailand’s economy has been struggling this year. Industrial production has slowed as growth in eight of the country’s top ten export markets has deteriorated, and domestic demand has stagnated as an expiring tax rebate for cars has weighed on consumption. Unless there is a rebound in China, the US, or Europe over the coming months, the economy is likely to continue limping along slowly.
Thailand’s slowdown, together with the recent capital outflows from emerging markets, has aroused fears that the country may suffer a repeat of the Asian Financial Crisis. After all, that crisis was marked by falling exports and capital outflows as well. However, it’s important to remember that Thailand’s collapse in 1997 was largely due to a massive real estate bubble, an untenable currency peg, and high levels of short-term foreign currency-denominated debt. Together, these three factors pushed the economy into a downward spiral when trade slowed and hot money flowed out of the country.
Today, Thailand is free from this triple-threat. The country does not have a massive real estate bubble, inflated by years of capital misallocation. The baht floats, so it is no longer vulnerable to speculative attacks from international investors. And Thailand no longer has huge amounts of short-term foreign currency-denominated debt. In sum, the country is not in danger of suffering another ’97-style crisis.
With this in mind, companies should not let themselves be distracted from monitoring the established risks to Thailand’s economy: political turmoil in the wake of the king’s eventual death, another round of severe flooding in the event of record rainfall, and a crisis in China, Europe, or the US. These risks may be familiar, but their potential impact has not diminished. Companies should ensure that their contingency plans for those risks are up to date instead of preparing for a repeat of 1997.