Private sector to drive growth, but rising costs a worry: SCB
Even though private investment is the key engine of the economy this year, businesses should beware of cost-push pressure from increases |in the cost of funds, wages and fuel, according to Siam Commercial Bank's Economic Intelligence Centre.
The strong performance of the country’s economy in the first quarter has prompted the research house to raise its growth forecast for this year’s gross domestic product to 5.6-5.8 per cent, with private investment overtaking public investment as the key driver. Investment by the government will be seen next year, Sutapa Amornvivat, chief economist and executive vice president of the bank, said yesterday.
Manufacturing output this year is expected to grow by 12 per cent on injections of private capital, she said.
Along with the growth in investment will surely come greater loan demand from the private sector, but companies are facing higher costs for baht borrowing because banks have to pay higher fees on deposits and bills of exchange to pare down the Financial Institutions Development Fund’s debts.
The cost of US dollar borrowing is also on the up-trend because of the lower supply in the market as a result of the strains in Europe, Sutapa said. When local banks experience difficulty in finding dollars in the market, they have to be more selective in extending credit.The difficult in sourcing dollars in the market will be a barrier for businesses that are planning to expand ahead of the Asean Economic Community.
Even though bank liquidity is strong, most deposits are stashed in state-owned banks, which are limited by policy in lending to the private sector, she said.
Since actual supply cannot serve requirements, private banks have to reserve dollars for their corporate customers venturing overseas.
inflationary pressure
The new Bt300 daily minimum wage will push up companies’ operating costs an average 3.3 per |cent, as well as adding 0.7 percentage point of the inflation rate, Sutapa predicted.
Inflation this year is now expected to reach 3.6-4 per cent. Businesses with supply chains will be more exposed to cost-push than standalone business, she said. Cost-push inflation happens when costs increase independently of aggregate demand.
The price of crude oil is expected to remain above US$100 a barrel throughout the year.
Businesses will have to cut some incentives for their employees and manage inventory to prepare for the higher costs, Sutapa said.
She expects the policy rate to stay at 3 per cent throughout the year. Monetary policy is not designed to counter the cost-push factor.
The benchmark rate is suitable for the central bank to act against unexpected tremors in the global economy because if the economic crisis hurts exporters, the Bank of Thailand can slash the rate to help them, she added.
