Better performance depends on stability

ECONOMY / OUTLOOK FOR 2008

Better performance depends on stability

NINA SUEBSUKCHAROEN

With the election concluded and efforts to form a government under way, observers are looking ahead to Thailand's economic performance in 2008, but clear-cut answers are hard to find. Scenarios range from a modest recovery to more of the same we saw in 2007 and, in a worst case heavily influenced by political instability, a major crisis emerging in two to three years' time.

Dr Anusorn Tamajai, Rangsit University's dean of economics, believes the Thai economy has to potential to expand by up to 5-6% under the most favourable conditions, chiefly sound economic policies including those supporting foreign investment and political stability.

However, as it would be too optimistic to hope for such a rosy outcome, an economic growth rate of around 4% to 4.5%, similar to 2007, is far more likely.

Most worrying is the third scenario in which a serious political crisis could push economic expansion below 4%. The result, he says, would be serious long-term problems, such as a widening gap in income distribution and erosion of Thailand's competitiveness, accumulating and surfacing as a major crisis in 2010 or 2011.

As the veteran economist sees it, a new wave of economic turbulence would differ from the meltdown of 1997, when the causes were mainly over-investment and the most prominent victims were businessmen and investors. The middle class suffered as well but the impact on blue-collar workers, farm families and the rural poor was not as pronounced.

Dr Anusorn warns that a future economic shakeup would affect the middle class and grassroots people. "The elite will be affected by the general economic outlook but not to a great extent."

Should the agriculture sector suffer an economic setback, it would not be able to absorb the unemployed workers returning home as it did during the 1997-98 crisis.

Anusorn: "You have to get your timing right"

In terms of policy, much will depend on the makeup of the new cabinet should the People Power Party form a coalition government. Dr Anusorn says PPP should bring in technocrats and economists with real-life experience, not just in academia, and good business managers to help run the economy. The choices may be limited since many former Thai Rak Thai experts, including former finance minister Dr Somkid Jatusripitak, have been barred from politics for five years. "They should appoint a finance minister who is immediately accepted by all factions when his name is announced."

In any case, he says, the new finance minister would have to carry a heavy workload because he will need to raise money and increase the government's income in order to fund various projects, particularly populist ones.

This means focusing on revenue and the tax structure, collecting as much as possible without introducing new taxes. "Actually, business and investment taxes should be cut to boost expansion but income and property taxes could be reconsidered. This could perhaps be collected at a progressive rate with those having lots of assets paying the most and not affecting businessmen and investors - we should focus on the super rich."

In terms of investment strategies for individuals, he favours bonds of up to two years' duration, because interest rates are likely to stay low until the end of 2008. "Only then will there be an opportunity for these rates to rise."

In the stock market, he sees potential in telecommunication and some property and banking firms, while giving a neutral rating to energy companies.

"You have to get your timing right. If the index rises it would do so because Thai stocks are cheap at the moment compared to other regional countries with the market PE being 11 times. If the PE rises to 13 times in 2008 then there is a chance that the SET index will climb to 950 to 1,000 points. But the market will be very turbulent, so timing your entry and exit is important."

Inflation is likely to climb to a range of 4.5 to 5% and prices of all products except property will rise because of higher manufacturing costs. "Property prices are unlikely to soar because even though raw materials are more expensive, buying power has not recovered substantially ... so there is still a buying opportunity."

Even if the economy slows more than expected, Dr Anusorn advises general investors to continue searching for opportunities because not doing so means losing a good chance. "There are opportunities in all situations, even if the economy slows down or there is or isn't a crisis, we have only find them."