Wednesday, June 25, 2008

6% growth achievable, says Thailand's FPO

Economic growth of 6% remains possible for 2008, thanks to strong exports, according to the Fiscal Policy Office.

The FPO, a unit under the Finance Ministry, yesterday maintained its base economic forecast of 5.6% this year unchanged, but cut estimates for consumption and investment growth.

Inflation projections were sharply increased to 7.2% for 2008 from a forecast of 4.5% in March. The FPO also raised its assumptions for Dubai oil prices to an average of $116 per barrel this year from $93 at the last forecast. Policy interest rates are now projected to increase by a full percentage point to 4.25% by the end of the year.

Exports would be the main engine for the Thai economy this year, with the FPO raising its growth forecasts to 8% in volume terms for 2008 from last year, up from 6.9% forecast in March.

The trade account, previously expected to post a deficit this year, is now expected to show a surplus of $1.7 billion, with the current account showing a surplus of $4 billion.

Pannee Sathavarodom, the FPO director-general, said exports in volume terms were projected to rise 8% this year, higher than 7% in 2007. In US dollar terms, export growth was projected to reach 20.3% in 2008 _ well above previous estimates of 13.5%.

Demand from Thailand's key trading partners remained strong, Mrs Pannee said, particularly from Asia and the Middle East.

The depreciation of the baht this year as well as moves to diversity markets would also benefit exports.

''Thailand's exports have decoupled from the major economies of the US, Europe and Japan,'' Mrs Pannee said.

Stronger exports would support overall economic growth even as domestic consumption and investment slowed from earlier estimates due to rising inflation and political uncertainty.

Inflation, led by higher food and energy prices, remained a major risk for the economy, Mrs Pannee said.

But even though private consumption was projected to rise just 3.5% in real terms, this still outpaced the 1.4% growth posted in 2007, she added.

High farm commodities prices, while pushing up inflation, have also lifted rural household incomes, as up to 40% of the labour force is in agriculture.

A 10% increase in minimum wages and cost-of-living increases for employees would also help consumption.

In any case, Kanit Sangsubhan, director of the Finance Ministry's Policy Research Institute, said it was difficult to forecast whether inflation would rise to double digits this year.

''It depends on oil prices, which remain quite volatile. If crude oil prices rise to say $165 per barrel, then the chance of seeing double-digit inflation in Thailand is quite high,'' he said.

Rising inflation in turn would lead the central bank to raise its one-day repurchase rate. The FPO now estimates policy rates to rise to 4.25% by the end of the year, compared with a March forecast of year-end rates of 3%. The central bank's Monetary Policy Committee next meets on July 16.

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