Politics, oil and US slowdown seen as three key risks ahead

Business News - Friday December 14, 2007

ECONOMY / OUTLOOK FOR 2008

Politics, oil and US slowdown seen as three key risks ahead

CHATRUDEE THEPARAT

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.''

Bangkok Post