Introduction

It has become known that the U.S. sub-prime crisis which began in the summer of 2007 pulled the United States and world economy into its deepest slump since the Second World War (Eichengreen 2008, Reinhart and Rogoff 2008, Taylor 2008). Presently, it seems like the worst of the global financial crisis has been overcome, but the consequences of the economic recession will still be with almost all countries for a while. While many are opting for optimism rather than a gloomy outlook backed by growing expectation over a global economic recovery, others keep their guard about the prospects for early improvement of the global economy. At least in the United States and Europe, many more jobs will be lost next year, which will make it difficult to predict the impact of higher unemployment, while it would be no surprise to see another round of bailouts of financial institutions, with disastrous repercussions on government budgets.

Thailand, not that close to the epicentre of the crisis, but like Asia as a whole, has also been affected, less by the turmoil of the U.S. and European financial sectors, but more with subsequent global slowdown in demand that had sharply been shrinking the Thai economy in terms of tumbling exports, sharply reducing growth and employment prospects, clearly shown since the last quarter of 2008. It is clear that Thailand has not “decoupled” from the global economy, in particular, those developed markets, as the country has become even more export-oriented reliance since the recovery of the last Asian financial crisis, so the sharp slowdown of these exports causes real concerns about the nature of prosperity depending solely on the external sector. The current context of the crisis also gives rise for the discussion on the way Thailand is also part of the global imbalances in recent years and that there is an increasing need for the country to focus more on domestic and regional demand of finished goods.

The crisis also provides an excellent opportunity to assess the impact and policy responses and to discuss the options for restoring economic growth and reducing the social impact. In the context of the Thai economy, Thailand has its own difficulties to come up with a proper policy response as the country is still in serious troubles with its own domestic political crisis for some years now.