2012 GDP forecast to be revised

The government will revise its 2012 economic growth projection soon, Deputy Prime Minister Kittiratt Na-Ranong said yesterday after the first meeting of the “War Room”, which has been set up in light of increasing risks at home and abroad.
“The GDP growth rate could be revised upward or downward as many factors will influence the estimation,” he said, after the meeting with economic ministers and related government agencies. The meeting was chaired by Prime Minister Yingluck Shinawatra.
The National Economic and Social Development Bank will carefully weigh all related factors, including the global economic condition, the fuel price, the flooding impact, the government’s policy to stimulate the domestic economy by injecting an initial budget of Bt27 billion to increase wages and the policy to promote farm-sector income, Kittiratt said.
 This year’s growth forecast will be maintained, though, Kittiratt assured, despite the floods and the expected slowdown in export growth in the coming months. He also believes that the impact of the euro-zone crisis should not be serious given Germany’s commitment to help battered nations, and the stock market and gold prices should be less volatile, starting from next week.
The pace of inflation should also slow in September as fuel prices fall, though it will likely quicken next year on higher purchasing power of low-income people. Kittiratt insisted that higher inflation is not a cause for concern, given that it is growing in keeping with the pace in neighbouring countries.
Despite Kittiratt’s apparently positive view, there are signs that the impact from external factors could be more severe than expected, firstly on the baht exchange rate on the back of huge fund outflows.
The Bank of Thailand reported that the current account fell into deficit in August, the first time in three months. Though the trade account showed a surplus, the services account showed a deficit of US$1.4 billion (Bt43.6 billion) on huge outflows, as investors have become risk averse due mainly to the European debt crisis. The current-account deficit thus amounted to $697 million, compared with a revised $3.44 billion surplus in July.
Usara Wilaipich, senior economist at Standard Chartered Bank (Thai), added that the current account slipped into deficit because of a narrower trade surplus. In August, oil imports spiked up due to the resumption of oil refinery and petrochemical plants that were closed for maintenance in July.
However, she admitted that there is the possibility of a global economic slowdown in the near future, which could pressure exports. Meanwhile, higher oil and raw material imports to meet domestic demand will pressure the trade account. For the rest of this year, the country’s trade and current account surplus will tend to narrow and possibly fall into deficit in some months, with a likely decrease in exports and surge in imports driven by domestic demand, Usara said.
Capital flows will also increase volatility of the baht, she added. In September, the baht weakened sharply as foreign investors liquidated assets, especially stocks and bonds, due to fears of a likely global recession, and unwound dollar carry-trade positions, she said. The baht will be under pressure as investors dump other currencies in favour of the US dollar.
StanChart estimates the Thai currency to touch 31.50 to the dollar by the end of this year.
Overseas investors were net sellers of Thai stocks, worth Bt16.5 billion, during September. The Bank of Thailand, as of September 23, reported foreign reserves of $181.3 billion, $3.5 billion down from the previous week, indicating intervention to shore up the baht.
The baht was at 31.11 per dollar as of 5.54pm yesterday. On a monthly basis, the Thai currency had a record low in a decade as foreign investors unloaded holdings out of fear that demand for Thai exports will likely slow down due to the sovereign debt crisis in the euro zone, according to Bloomberg.
The baht touched a one-year low on Thursday after the Finance Ministry cut its 2011 economic growth forecast to 4.3 per cent from the previous estimate of 5 per cent in June.