Thailand Economy
S&P optimistic about Thai economy in post-election period
Standard & Poor's Rating Services, one of the world's renowned credit rating agencies, has expressed optimism about the Thai economy in the post-general election, saying the December 23 poll is key to rejuvenating Thailand's sovereign credit fundamentals. However, it warned that political divisions, if persisting after the election, would further weaken the economy and undermine the country's sovereign credit fundamentals. The agency said the Thai economy had been adversely affected by political and policy ambiguities for almost two years, resulting in an investment slowdown in the country. But at present, the political and policy uncertainties had eased, particularly following the election, which could lead to a restoration of investor confidence. In this scenario, Standard & Poor's maintained its stable outlook for Thailand's 'BBB+' foreigncurrency sovereign credit rating. This could revive local demand to a prevent possible surge in unemployment when the global economy experiences a slowdown. Nonetheless, should political divisiveness continue unabated in the post-election period and lead to another unconstitutional replacement of the government or violent social unrest, the consequences to the economy would be greater and more damaging. Such a development will definitely undermine Thailand's sovereign credit rating or the outlook on the rating. Source: MCOT Posted: December 24, 2007
Politics, oil and US slowdown seen as three key risks ahead
Domestic politics, global oil prices and the prospect of a US recession are the main risk factors for the Thai economy in 2008, according to economists and business leaders. Speakers at a conference held yesterday by the International Institute for Trade and Development expressed cautious optimism that growth would pick up in 2008 following the Dec 23 election. The Finance Ministry recently raised its 2008 growth forecast to above 5%, after third-quarter growth outperformed expectations at 4.9% year-on-year. Still, economic growth this year would lag the rest of the region due to the political uncertainties since 2006, said Somchai Richupan, a former director-general of the Fiscal Policy Office. He said that while prospects would improve after the election, the new government, most likely to be a coalition, would have trouble executing policies due to infighting. Mr Somchai expressed hope that the main parties considered the impact their actions would have on growth, investor confidence and foreign investment. ''The stability of the government is important, yes. But more important is political stability,'' he said. External factors would also pose key risks to Thailand, including the shift in economic power from the US to Europe, Japan, China and India. Thailand's heavy dependence on
imported oil would also weigh on economic growth in 2008. Mr Somchai said growth could exceed 5% with greater fiscal spending. Productivity gains, more efficient land utilisation and tax reforms would also help. Surakiart Sathirathai, a former foreign minister in the Thaksin Shinawatra government, said the next government could increase spending by up to 200 billion baht by running a modest deficit to finance new infrastructure investments. A budget deficit of 2% to 3% of gross domestic product would not jeopardise fiscal and monetary discipline, he said. Greater investment would also help reduce the current account surplus and pressure on the baht, Dr Surakiart said. He said logistics and productivity improvements, development of the Southern seaboard, incentives for alternative energy and strengthening ties within Asean were all key issues that the new government should consider. Jingjai Hanchanlash, an executive vice-president of Loxley Plc, said political stability was crucial for international trade and investment growth. ''The private sector will wait and see until it is confident in the political situation before committing to new investment,'' he said. ''Right now, no one can predict what will happen with the next government. I try to tell foreign investors that Thailand will not see another coup, but then again, I was quite wrong when looking back to September 2006.'' Source: Bangkok Post Posted: December1 4, 2007
Inflation to be a major threat
Accelerating inflation due to commodity prices will be a key economic negative factor next year, according to Tarisa Watanagase, the Bank of Thailand governor. The central bank has not finalised the inflation forecast for 2008, but rising global commodity prices could lead to a higher local figure, Dr Tarisa said yesterday. ''Inflation is my concern. There are many factors that could push it up including rising oil, agricultural product and other commodity prices,'' she said. The Finance Ministry expected the headline inflation, as measured by the consumer price index, to stand at 4% in 2008. The central bank's existing forecast put the inflation at 1.52.8% next year, with a revision due at the end of January. ''It is difficult to predict if prices will rise as much as 4% as in the ministry's forecast. The key factor for the inflation is oil prices, which are difficult to predict in a long-term trend,'' she said. The Fiscal Policy Office (FPO) expected the Dubai oil price to stand at $83 per barrel in 2008, compared with $68 per barrel in 2007. Each one-dollar rise in crude prices will add 30 satang to the retail oil prices and 0.3% to inflation. The FPO expects the minimum wage hike by 1-7 baht across the country to affect the inflation only minimally, in a range from 0.02% to 0.11%. The baht is expected to strengthen to 33.80 baht to a dollar in 2008, compared with 34.60 baht to a dollar in 2007. The FPO expects each one-baht appreciation against the greenback to bring down the pump prices by 60 satang per litre and reduce inflation by 0.1% per year. It expects the bus-fare hike by 50 satang to one baht and the lift of cooking-gas subsidy to have a marginal effect on inflation. The planned 1.20-baht increase in cooking gas price per kilogramme will increase inflation by 0.02%. Source: Bangkok Post Posted: December27, 2007
Interest rates remain unchanged
The Bank of Thailand yesterday maintained its benchmark interest rate at 3.25% as part of a wait-and-see approach toward economic growth and inflation. Domestic consumption and investment had showed signs of recovery, while export growth had remained robust, said Duangmanee Vongpradhip, an assistant governor for the central bank's Monetary Policy Group. But rising global oil prices and the slowing US economy could affect economic growth this year, she said after a meeting of the rate-setting Monetary Policy Committee (MPC). ''The MPC deemed that overall growth momentum had improved from the previous meeting from domestic demand. But uncertainty surrounding the risks to growth and the inflation have risen, which should be monitored closely going forward,'' the MPC said in a statement. The decision was widely anticipated by the market. Most analysts expected the central bank to keep the one-day repurchase rate steady and highlight the risk of inflation to economic growth. The recent rise of global oil prices _ West Texas Intermediate futures briefly reached $100 per barrel earlier this month _ and the move by local manufacturers to raise prices to reflect higher commodities prices, has raised inflation fears. Ms Duangmanee said the MPC expected inflation, as measured by the consumer price index, to accelerate in the first half before easing in the second half, assuming that world oil prices fall. The MPC recently raised its assumptions for Dubai oil prices to average $85 per barrel from an earlier forecast of $68. The worst-case scenarios would involve oil prices averaging just below $100 per barrel this year. ''The impact from inflation is not adverse and current trends still remain under our forecast for the next eight quarters,'' Ms Duangmanee said. ''[With the current interest rate], inflationary pressure going forward is manageable. In the meantime, we weighed the fragile growth [of the economy] in our decision.'' Ms Duangmanee said the MPC believed the economy was facing uncertainty, despite signs of continued improvement in domestic demand. Exports had been robust in 2007, despite the baht's appreciation. But it would slow in 2008 in line with global economic growth led by subprime problems in the United States. ''There are signs of a [domestic] economic recovery, but it still remains fragile. The MPC wants to ensure that economic growth continues in the long run. Domestic demand will help offset a decline in export growth this year.'' She said the MPC would monitor whether the economy ''decouples'' from the downward trend of the US. A slowdown in the world's largest economy would ultimately affect global demand. In any case, export competitiveness as measured by the nominal effective exchange rate remains strong. Ms Duangmanee said private investment was expected to pick up well into 2009 in light of large mass-transit projects and Board of Investment approvals. The MPC expects private consumption to pick up when sentiment improves. She said the MPC did not regard the baht's appreciation as a direct negative factor on economic growth in 2008. Ms Duangmanee added the MPC would revise the core inflation target, by removing energy and raw food, when it complies with legal change stipulated in the new Bank of Thailand Act. Source: Bangkok Post Posted: January17, 2008