Central bank says 2012 GDP expansion could surpass 6%

"The first-quarter [GDP] growth was better than expected. There is high possibility for the economy to expand by more than 6 per cent," said BOT Deputy Governor Suchada Kirakul.

Both domestic consumption and investment will likely rise and help drive the economy this year, she said during a group interview yesterday, citing pent-up demand from last year, repairs and replacements, plant modernisation, and the government’s stimulus measures as likely growth drivers.

In its meeting early this month, the central bank’s Monetary Policy Committee raised its 2012 GDP growth estimate to 6 per cent from 5.7 per cent, citing this year’s quicker-than-expected recovery and last year’s low base.

The next MPC meeting is scheduled for June 13. There is a high possibility of the committee raising the growth estimate again, thanks to better-than-expected recovery in manufacturing, domestic consumption and domestic investment, said Paiboon Kittisrikangwan, assistant governor.

However, Suchada said uncertainties over Europe’s sovereign debt crisis had heightened, posing a major risk to growth in the second half of the year.

"There is political risk in Europe. We are not certain about the level of its impacts, and this becomes a major risk," she noted.

Last week, Greece’s possible exit from the euro moved to the centre of Europe’s debt-crisis debate, and that could trigger the risk of contagion to other indebted countries in the euro area. Spain’s banking sector has been adversely affected recently.

The worsening European debt crisis, coupled with the fragile US economic recovery and Chinese slowdown, could pose a threat to the global economy, which might see a slowdown in the second half, Suchada said.

Taking the likely global economic slowdown in 2012 into account, the BOT estimates growth of Thai exports to rise to single digits, at 9.2 per cent. "This year, domestic demand will likely help drive the Thai economy. Domestic consumption and domestic investment could continue because of demand for repairs, [manufacturers’] modernisation, and the government’s stimulus measures," Suchada said.

Despite the better-than-expected first-quarter recovery, inflationary pressure is not the central bank’s immediate concern.

"We need to monitor the factors of inflationary pressure for a period. There is no sign of overheating now. We will still keep inflation in check," Suchada said. The BOT has forecast headline inflation at 3.5 per cent and core inflation at 2.5 per cent this year.

Both fiscal and monetary policies continue to support the country’s economic recovery, Suchada said.

BOT's Economic Forecast (May 2012)
2012 / 2013 (%)
GDP: 6.0 / 5.8
Private Consumption: 5.7 / 4.5
Private Investment: 14.3 / 10.6
Public Consumption: 4.9 / 2.2
Public Investment: 17.9 / 17.7
Exports (value): 9.2 / 14.6
Imports (value): 17.0 / 12.4
Source: Bank of Thailand