'Prioritise on global uncertainty, flood impact'

“In the next four to five months, the picture could change. Early in the second quarter of next year, we may not be talking about the floods. Then, the global economy could be very gloomy with high and prolonged uncertainty,” Prasarn Trairatvorakul told a seminar on “Direction of Thai Economy and Business after the Flood Crisis”.
He also urged the government to keep some fiscal room during any period of extreme and prolonged global economic uncertainty.
“It’s necessary to have fiscal measures [with a high level of investment] for water-resources management, but there should be fiscal room to restore confidence [in Thailand] during the global uncertainties, which could worsen in the future,” he said.
Although the European Union recently reached a preliminary conclusion on resolving the sovereign-debt problems in such countries as Greece, and other measures, there is as yet no confirmation that the problem will be totally resolved, the central-bank chief said.
Euro-zone countries and the United States have to tighten their belts, leading to less purchasing power.
The fragile US economy and the European debt problem could affect Thailand in trade and financial markets, he added.
Likely impacts on the Kingdom’s trade might, however, not be severe due to its well-diversified trading partners, he said. Currently, Europe accounts for about 10 per cent of Thai exports, and most overseas sales are staple goods.
Financial markets are sensitive to unclear solutions to both the European and US problems and that could lead to a drying up in credit markets and currency fluctuations, Prasarn cautioned, adding that “this requires close monitoring”.
Monetary policy-makers also need to respond to the short-term severe impacts from the flooding to economic activities and likely situations after the flood waters recede, as product prices could be driven up as a result of government policies and public, private and consumer spending, he said.
“Once the flood waters retreat, how rapidly and to what extent will businesses recover? Impacts from the flooding will likely be short-term. In the first to second quarters [next year], we will likely see a return of such activities as house repair and car purchase. And, how to adjust monetary policy to maintain confidence and control inflation will be considered,” Prasarn said.
Inflation remains high in the current quarter, but next year will likely see lower inflation due to the expected global economic slowdown, he said.
This year’s headline inflation is expected to stay at 3.8 per cent, with next year’s estimated headline figure estimated at 3.5 per cent, depending on the economic recovery level, the governor said.
The biggest challenge for the country now lies in how to restore confidence about long-term water-resources management, as Thai and foreign investors need assurance that they will not face flooding in the future, Prasarn said.
This year’s economic-growth forecast could be revised down significantly, from the previous estimate of 2.6 per cent, at the Monetary Policy Committee meeting on November 30, he said. The estimate for next year, however, will likely be higher than the previous forecast of 4.1 per cent.
This year’s fourth-quarter economy will likely see a contraction due to the severe floods, he added.
After the floods, the agricultural sector will likely stage a recovery in the near future, with sustained
 high prices. “Commodity prices remain high, there is still a supply shortage and government measures could boost farm income,” Prasarn said.
However, it may take some time for the industrial sector to recover, he said, but a plus point is that Thailand’s clusters remain strong.
In one to two months after the floods recede, tourism may recover.
Consumption in areas such as house repair and car purchase could return in the first quarter of next year, while production may recover in the second quarter, Prasarn said.