Bank of Thailand (BOT) increases growth forecast

Posted on 30 July 2007

The Bank of Thailand has raised its economic growth forecast for 2007 to a range of 4-5% from 3.8-4.8% to reflect the better outlook for exports this year. Economic growth projections for 2008 were also increased to between 4.5% and 6% from an earlier range of 4.3-5.8%.

Inflation forecasts, as measured by the Consumer Price Index, were left unchanged in a range of 1.5% to 2.5% this year and 1-2.5% for 2008. Core inflation, which excludes energy and raw materials, was revised downward to 0.8-1.5% this year from 1-2%, and maintained unchanged at 1-2.5% for 2008.

Suchada Kirakul, assistant governor for the Monetary Policy Group, said the central bank raised the export growth forecast to a range of 12-15% in 2007, from 9-12%, due to better-than-expected consumer spending. Exports were strong in the first half of the year thanks to entrepreneurs diversifying their markets and a 5% price increase, which was better than 2006.

But exports grew just 7-8% in baht terms in the first five months, due to the currency's appreciation. The central bank predicted exports would slow in the second half from 18% growth in the first half because of sluggish growth in trade partners' economies.

''We expected the decrease in export income in baht terms to be stable at 50% of growth in dollar terms,'' Mrs Suchada said.

The central bank expects Asian economies to grow by 6.9%, compared to 6.4% in the previous forecast. It raised the growth forecast for Europe to 2.5% from 2.3% and Japan to 2.6% from 2.3%. It also reduced the US economic expansion forecast to 2.2% from 2.4%.

The central bank has revised up the import growth forecast to 9-12%, from 7.5-10.5%, due to an improvement in domestic demand and a rise in oil prices.

It raised the forecast trade surplus in 2007 to between $5.5 billion and $7.5 billion from $3-5 billion, and the current account surplus to $7-9 billion from $4-6 billion due to a moderate forecast for imports.

The central bank expects domestic demand, while recovering, to remain weak in the second half. It has maintained a forecast for household consumption at 3.5-4.5% growth in 2007 and reduced aggregate investment growth to 1.5-2.5% from 4-5%.

Interest rate cuts by the central bank, and government stimulus measures would help prop up domestic demand in the latter half. The political situation has also improved from the previous forecast due to the May court ruling to dissolve the Thai Rak Thai party.

The impact from interest rate cuts and a more robust economy would be felt in the second half of the year. Domestic demand is expected to improve in 2008, Mrs Suchada said.

She said the central bank was not concerned about unemployment despite the rapidly strengthening baht, which prompted one large garment producer to close and lay off 5,000 workers.

Despite some problems, the the country is experiencing a labour shortage, said Mrs Suchada, as more factories were opening than closing.

She said the Bank of Thailand expected the US Federal Reserve to keep interest rates unchanged at 5.25% until the second half of 2009. The strengthening baht and lower interest rates have been supporting investment as they helped reduce import costs and allowed the private sector to raise funds from the SET and the bond market at a lower cost.

''Our survey shows that firms that have received promotional incentives will invest three years later. They should start investing right now,'' she said.

She added that the central bank's latest interest rate cut by a quarter point to 3.25% was aimed at stimulating domestic demand. The outlook for exports, meanwhile, would depend on trade partners' economies and foreign exchange.

Bangkok Post, July 30 2007

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