Researchers agree flood crisis to hit economy hard

Somchai Jitsuchon, director of the Thailand Development and Research Institute (TDRI), said the government should establish a long-term flood-prevention system to ensure investors’ confidence.
The TDRI expects losses from the nation’s worst floods in decades will shave 1-2 percentage points off this year’s growth in gross domestic product. The speed of economic recovery depends on how long the floods persist, he said.
If the massive flood water is released through the east of Bangkok without systematic management, damage is expected to be higher, as several industries are in that area, he said. Already many industries, particularly in the electronics and automotive sector, have been hit hard by the floods.
Siri Kancharoendee, a member of the Bank of Thailand’s Monetary Policy Committee, expects the restoration to take about six months.
The MPC is ready to hold a special meeting if necessary and is monitoring the situation for monetary decisions in the future, he said. The policy-makers are scheduled to meet again on November 30.
Haver Analytics, a research house of Barclays Capital, said it had lowered its forecast for Thailand’s GDP growth this year to 2.9 per cent, and raised it to 5.1 per cent for 2012.
“We are lowering our GDP-growth projection for Thailand to 2.9 per cent for 2011, from 3.7 per cent previously,” it said. The change is on the back of expected flood-related losses of more than Bt100 billion and to factor in a further potential loss of activity.
The current fourth quarter of the year is likely to be the weakest quarter, and Barclays expects GDP to contract by 4 per cent quarter on quarter annualised, before recovering sharply in first half of 2012.
Based on an expected surge in reconstruction activity in the first half of next year and a low base, Barclays is revising upwards its 2012 growth forecast to 5.1 per cent, from 4.7 per cent previously.
“The risks to our revised 2011 projection are to the downside, given that the flood situation could deteriorate further,” Barclays said.
The house believes that the BOT may consider providing monetary stimulus if there are no signs of an improvement in the economy by December, or if there is a lengthy delay in the government’s fiscal response. “As such, while we retain our base case that the Thai central bank will not hike rates in 2012, we see the rising possibility of a rate cut going into the first quarter.
“Perhaps in a move to assuage market fears, Governor Prasarn [Trairatvorakul] came out a day after the MPC meeting [on Wednesday] and indicated that the central bank was ready to hold a special meeting and deliver monetary stimulus, if it appeared necessary. This, in our opinion, indicates that the BOT has no intention of changing its current policy course of rate normalisation but would be responsive to events.”
Haver Analytics added, however, that it did not expect the likely GDP contraction in the current quarter alone to prompt any action by the BOT.