Thailand: Worst floods in five decades weigh on economic outlook
October 21, 2011
Extraordinarily heavy rainfalls at the end of this year's monsoon season caused the worst floods in Thailand in more than 50 years. The floods have killed more than 350 people and left millions without homes. So far, the floods have mostly affected the country's central and northern regions but they now threaten to reach Bangkok, which accounts for approximately 41% of Thailand's GDP. According to official estimates, more than 650,000 employees are temporarily unemployed as many factories had to shut down operations, disrupting production in the car and electronics industries, and raising concerns about another supply chain disruption. While Thailand is a much less important exporter of vehicles and components, it serves as an important hub for the Southeast Asian car industry. Moreover, Thailand produces about a quarter of the world's hard-disk drives, a critical supply element in the global electronics industry. The government estimates that it will take three to five months to drain the affected areas and resume normal operations in the industrial sector. Next to the industrial sector, the floods are also seriously affecting the country's agriculture and tourism sectors. In northern Thailand, key agricultural centres have been particularly hard hit, including large swathes of rice crops. According to official estimates, 10% of the current rice harvest is damaged, which is likely to result in higher rice prices, adding pressure on inflation in the coming months. Tourism will also feel the effects of the floods, as top tourist destinations in Thailand, which remain under critical conditions, have issued flood warnings or are just beginning to recover. The Central Bank now believes that GDP will shrink in the last quarter of 2011 and has cut its 2011 growth estimate to below 3%, down from its previous 4.1% estimate.
Author: Ricardo Aceves, Senior Economist