ECONOMIC OUTLOOK
BOT lowers its growth forecast
Central bank slashes 2007 forecast by half a percentage point; consumption, investment predictions are also down
The Bank of Thailand (BOT) has lowered its forecast for this year's economic growth by half a percentage point to 4-5 per cent, to reflect negative factors.
Forecast growth in private consumption and private investment has been cut, while export growth has been revised upward but is expected to be lower than last year.
Total consumption is projected to expand 3.5-4.5 per cent, down from the earlier forecast of 4-5 per cent. Growth in total investment is now estimated at 6-7 per cent, compared with 8-9 per cent forecast before.
Export growth is predicted at 7.5-10.5 per cent, up from 6-9 per cent.
The economies of trading partners are expected to grow by 4.2 per cent and recovering farm prices will help boost exports. However, the central bank's export growth forecast is far below the Commerce Ministry's target of 12.5 per cent.
BOT Assistant Governor Suchada Kirakul said the revised forecast could be ascribed to a delayed recovery in domestic demand and a slow-down in net exports.
Despite weakening oil prices, investors have postponed their investments to wait for a sustainable situation. However, some investors who have long-term investments plan to continue them.
"We earlier expected a pickup in investment in the fourth quarter of last year, but floods and uncertainty over the government's mega-projects have caused investors to delay their investment plans," Suchada said.
The central bank forecasts that private consumption and private investment will grow by 3.5-4.5 per cent and 4.5-5.5 per cent, respectively. Public consumption is projected to expand by 4.5-5.5 per cent, and public investment by 10-11 per cent.
The BOT's revised economic growth prediction is similar to forecasts made by the Finance Ministry and the National Economic and Social Development Board, while the private sector consensus is 4.6 per cent. The BOT's projection for economic growth in 2008 is 4-5.5 per cent.
Suchada said the revised growth figure took into account unremunerated reserve requirements, tourism, investment in the trade sector, and construction investment by the private and public sector. The draconian currency-control measures are estimated to bolster economic growth by 0.79 per cent, but add 0.17 per cent to core inflation and 0.16 per cent to headline inflation.
A one-per-cent decline in tourism could shave 0.04 of a percentage point off economic growth. A similar reduction in trade investment would adversely hit growth by 0.06 of a percentage point.
The economy could lose 0.11 and 0.09 of a percentage point, respectively, if investment in the construction sector of the government and the private sector decreased by one per cent.
Core inflation has been forecast at 1-2 per cent, down from 1.5-2.5 per cent in the previous projection. Headline inflation has been revised upward from 1.5-3 per cent to 1.5-2.5 per cent. This is based on an assumption of crude oil at US$56.50 (Bt1,900) per barrel in the Dubai market, against $61.30 in the previous forecast.
The BOT projects the trade surplus at $2 billion to $4 billion and the current-account surplus at $2.5 billion to $4.5 billion this year.
However, Suchada is optimistic the current-account surplus will not put significant additional pressure on the baht, because the balance of payments is likely to be in balance. She said capital inflows would not add pressure to the strong baht, as they had done last year.
But the BOT forecasts that regional currencies are likely to appreciate, due to a weak dollar and a good outlook for the regional economy. The policy interest rate could be eased continuously if inflationary pressure and risk factors decline significantly, she said.
Anoma Srisukkasem
The Nation Thailand
Sunday January 28, 2007
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