Monday, January 07, 2008

Concerns linger in spite of poll and improved economic figures


Concerns linger in spite of poll and improved economic figures


For months, most businessmen believed that the Dec 23 election would restore optimism about the country's longer-term economic outlook, which had been severely damaged by the 2006 coup.

But the new military-drafted constitution, which favours weak coalition governments, could complicate the hope for consistency in the new economic policy framework.

Business and consumer confidence took a beating after the September 2006 coup, with private investment and consumption both grinding to a halt in the first half of 2007.

According to a November survey conducted by the Federation of Thai Industries, business confidence picked up in the last quarter in light of the election. But firms became more concerned about shortcomings in the continuity of economic policies, rising oil prices and the worsening US sub-prime problems.

Amara Sriphayak, senior director for the Domestic Economy Department at the Bank of Thailand, said domestic demand was helped by economic policies that focused on grassroots spending.

''Domestic demand declined since 2005 partly because of the cyclical factor _ it had been accelerated earlier by both fiscal and monetary policies. But in 2007, the problem was sentiment,'' she said.

Investment activities turned around in the second half of the year in line with improved confidence in anticipation of the year-end election. Sustained high capacity utilisation suggested firms were ready to invest.

Dr Amara said investment in certain projects not related to public spending could improve right after the elected government is formed.

Business that can support the overall industrial sector such as petrochemicals, as well as automobiles and electronics, could start investments after the new government takes shape.

Projects in the public-sector pipeline, including about 100 billion baht worth of investment along the Eastern Seaboard, would help improve momentum for private investment, she said.

Prasarn Manoleehakul, the president of Kasikorn Research Center, said public spending efficiency would play a key role in boosting private investment in 2008.

''Businesses want to be confident that there is demand to serve their investment. The size of 2008 fiscal expenditure budget is sufficient, but the problem as usual in the past is the speed of disbursement,'' he said.

Phatra Securities expects private investment to become a key economic engine, with 6.1% year-on-year growth in 2008 and 9.2% year-on-year growth in 2009. The growth will help offset a decline in exports due to the US sub-prime debt crisis in 2008.

Supavud Saicheua, managing director of Phatra, said that accelerated state enterprise spending and investment in tourism-related sectors could begin right after the new government is formed.

Certain projects that need clearer government policies could recover in the second half of the year, assuming clear policies are set regarding the Foreign Business Act, foreign land ownership and the 30% reserve requirement.

Board of Investment records for submitted and approved projects for investment promotion reflected significant projects in the backlog.

''But we are at the point where we must decide which direction we want our investment to go and what investment suits our fundamentals,'' Dr Supavud said.

For instance, the economy should utilise the Japan-Thailand free trade agreement to benefit the local automotive industry, given tight competition from countries such as India. The country should also think about whether it wants to focus on heavy industries such as steel to boost the automotive sector.

It's important for the government to clarify its stance on alternative energy, he added.

No comments: