Happy New Year!

As we were preparing ourselves to welcome the Year of the Rooster, we had to say a horrific goodbye to the Year of the Monkey. The Tsunamis created by a gigantic earthquake (9.0) in Aceh, Indonesia killed over 150,000 people around the Indian Ocean rims on 26/12/04! Never before had Thailand experienced a natural catastrophe on this scale!

Acts of God

The Tsunamis on 26/12/04 had washed away billions and billions of Baht investment particularly in scores of new 5 stars hotels in Khao Lak near Phuket. The new tourist attractions were meant to be the jewels of the crown of Thai tourism. The economic loss, initially estimated at THB 40 billions, was nothing compared to the human tragedies that were enfolded when thousands of holidaying families, frolicking on the pristine beaches and paradise islands, were washed away by the giant tidal waves. Let this Tsunami nightmare be a wake-up call against our mad rush to encroach and capitalize on Mother Nature!

Most precious

Mankind can no longer take Nature for granted! The freak weather and devastating natural disasters that we have been experiencing globally in the last few years are concrete evidences of deteriorating global environments. Accelerating pollutions of air, land, sea, fresh water and forests have been rampant worldwide. In the long run, the costs to humanity will prove to be far greater than the economic costs. It’s still not too late for us to pull our acts together and start treasuring what precious little natural resources that we have left!

Global slow-down?
With continued threats of terrorism, the unfinished wars in Iraq and Afghanistan and a possible “contained war” with North Korea, the world economy is expected to slow down this year with continued volatility and high oil prices, further weakening of the USD, climbing interest rates, and dramatic reduction of US imports from Asia. Intra regional trade will also increase within the regional economic blocs like NAFTA, EU, AFTA etc.

Oily path ahead!

Haunted by fear of supply shortages from war, terrorism and political upheavals in the Middle East, Russia and Venezuela, oil traders and speculators will continue to shift their positions as oil demand and supply toss and turn in 05. With this winter milder than expected (except for the freak snow in Texas!), oil prices ended the year on the softer side at USD 42.

Slow engines

American GDP is expected to grow 3.6% in 05. Their industry outlook will be selective. Makers of heavy machinery and commodities for export to China will do well, followed by transportation, energy and utilities. In contrast, consumer products, financial, construction and most of hi tech industries are expected to become sluggish. Growth in Japan and the EU too will remain lackluster due to lower exports because of the stronger Yen and Euro as well as their weak consumer confidence. China and India will continue to shine, with high single digit growth rates. Asean countries will piggy-back China.

Clothing the world

Starting this new year, three decades of quotas on US and European textile and garment imports had become history. Some 30 million jobs in the textile industry worldwide are expected to be affected as the two low-cost giants, China and India, fight for even greater market shares.

Big spenders!

In 05, we can also expect more large MNC’s to follow IBM’s strategic sale of their PC business to China. With strong Yuan and as much cash as USD 14 billion to invest in a year, China is now set to become a mover and shaker on the M&A scene, both at home and abroad. Asean countries particularly Thailand, will be welcoming Chinese FDI’s as well as Chinese tourists with open arms.

Destination Asia

As the value of their national reserves continues to be eroded by weak USD, Asian central bankers will soon follow hedge fund managers and foreign investors. To diversify their portfolio, they have been shifting more and more of their reserves and assets out of the wobbly US currency. Asian currency bond and capital markets are expected to become more robust in 05. The timing will also be good for Asian governments like Thailand to privatize and securitize their mega infrastructure projects.

The Ukraine to split?

The victory (52% vs 44%) of pro-Western Viktor Yushchenko’s in the Ukrainian third presidential election on 26/12/04, was indeed a historic failure for Russian President, Vladimir V. Putin. The defeated pro-Russia candidate, Viktor Yanukovych, has so far refused to throw in the towel. We can expect the Ukraine saga to continue into 05 as the two political groups struggle to get into the Government House! Hopefully it would not end in a split of the Ukraine, as feared by many.

Free carrots – with love

In Thailand, although TRT Party is expected to win the national election on 6/2/04, PM Thaksin has not been taking any chances. Prior to the Tsunami disaster, he has been campaigning arduously, a la American presidential style, to get at least 350 (out of 500) seats. The TRT campaign spins have been so awesome that one cannot help but feel sorry for other political parties, especially the struggling opposition Democratic Party! For voters in each and every market segment, it has become almost impossible to draw the line where campaign promises begin and government’s future budgets end!

Rougher road ahead

With a certain degree of political uncertainty in the first quarter, the Thai economy in 05 is expected to soften, due to both internal and external factors. To list a few: the still unsolved terrorist problem in the Deep South, poorer harvests (droughts and floods) affecting purchasing power upcountry, the Tsunami’s damage to tourism in the key Andaman area, softer consumer confidence and spending, higher household debts, emerging new NPL's particularly in government banks, negative impacts from more FTA's being negotiated, uncertainty over new banking and business rules and regulations, higher interest rates from the crowding-out effects of the government's THB 1.5 trillion budget for large infrastructure projects, climbing inflation, stronger Baht, more speculative fund flows, more volatile stock market (670 on 30/12/04), and last but not least, astrologers’ fearful forecast of misfortunes in 3/05 and 8/05!?

What now?

As we begin our working new year today, we need to keep our optimism and confidence, while exercising caution, in our tasks ahead. In today’s increasingly fast changing economic, political, social and natural environments, we have to work much harder for much less. If 2004 was a good year economically, 2005 will certainly be a more difficult year. Having weathered much worse storm in 97-98, there is not reason why we should not survive this year, with lots and lots of good luck!

Vongthip Chumpani
4/1/05