Slower expansion expected for 2008

ECONOMY RANGSIT UNIVERSITY FORECAST

Slower expansion expected for 2008

DARANA CHUDASRI

Economic growth should range from 4% to 4.5% in 2008, based on the assumption of a coalition government and a less-than-credible economic team, according to economists at Rangsit University. ''A coalition government in itself will not be a constraint on economic growth, given that the country's fundamentals are relatively strong,'' said Anusorn Tamajai, the dean of the economics faculty at Rangsit University.

''But if its stability is weak, it could affect economic growth over the next several years.''

The growth forecast falls short of the 5% projected by other economists and the government itself. Growth this year is projected at 4.5%, down from 5% in 2006.

Dr Anusorn said that political instability would result in weak private investment and slow economic growth.

Conversely, he said, a stable government would be a significant benefit for economic growth.

The People Power Party, led by Samak Sundaravej, is widely expected to form the next government after capturing 233 seats in last Sunday's election, well ahead of the 165 seats captured by the second-place Democrat Party.

PPP's economic team is led by Mingkwan Sangsuwan, a former top marketing executive of Toyota Motor Thailand and MCOT Plc.

Dr Anusorn said that Rangsit University's 4% to 4.5% growth forecast assumed Dubai oil prices averaging $80 next year, average growth of 14 major trading partners of 4% and exchange rates of 34 baht to the dollar.

The base-case projection assumes little pickup in private investment and consumption in the first quarter, with consumption for the year growing just 2%.

Relatively high debt levels averaging 104,571 baht per household would constrain consumption. Savings rates also are relatively low, with up to 80% of household revenues spent on consumption.

Investment was projected to rise just 4% in 2008, although a best-case scenario would see investment jump to 7.2%, with private investment growing 8%.

Dr Anusorn said the new government should move quickly to increase fiscal spending in 2008 to help compensate for projected declines in export growth.

Monetary policy, meanwhile, should remain stable to support growth, even as inflation is expected to rise to 4% to 5% next year, or double that of 2007.

''One of the most urgent tasks facing the new government is how to control living expenses as well as boost per-capita income,'' Dr Anusorn said.