Global gloom to hit growth

Following on the heels of the University of the Thai Chamber of Commerce (UTCC), the Bank of Thailand is expected to be the next to trim the 2013 economic-growth forecast in light of the global slowdown.

As the International Monetary Fund prepares to announce a revised “World Economic Outlook” this week, the central bank’s Monetary Policy Committee (MPC) that convenes tomorrow is widely expected to cut the forecast from 5.1 per cent. 

IMF managing director Christine Lagarde said the Fund might cut the global growth forecast because of the slowing expansion of emerging economies. The Washington-based Fund predicted in April that the world’s gross domestic product would expand 3.3 per cent this year, spurred mainly by China. Now, that country’s GDP is expected to expand below the normal 8-per-cent rate, while the euro zone is in recession and the United States has not yet fully recovered. 

“I fear, given what we’re seeing in particular in emerging countries – not the developing and low-income countries but emerging countries – that we will be slightly below that,” Lagarde told a conference in Aix-en-Provence, France. 

 

 

The Finance Ministry earlier lowered its growth forecast to 4.5 per cent from 5.3 per cent. The UTCC yesterday announced its May forecast of 5 per cent had been cut to 4.3 per cent, the slowest annualised growth since 2011, on sluggish exports. 

As growth slows, the central bank is expected to maintain the policy interest rate at 2.50 per cent at tomorrow’s MPC meeting. After the 25-basis-point cut in May, Moody’s Analytics said high-frequency-trade, production and household consumption data suggested the economy was slowing. Inflation pressures remain subdued, allowing the BOT to maintain an easing policy bias. 

“Our baseline forecast assumes no further rate cuts in 2013; however, if the economy continues to deteriorate, further rate cuts are likely.”

Despite the negative outlook, Chartsiri Sophonpanich, chairman of the Thai Bankers’ Association, is optimistic that the Thai economy will fare better in the current second half. Though agreeing that China’s slowdown and other external factors will hurt Thailand’s exports, Chartsiri foresees a more stable foreign-exchange rate while interest rates will be low enough to accommodate domestic demand and overseas expansion of Thai firms.

Thanavath Phonvichai, director of the UTCC’s Economic and Business Forecasting Centre, said Thailand will see lower-than-expected export growth and slowing investment.

“Historically, Thailand has been able to maintain annualised growth above 5 per cent despite domestic political instability, except during three major crises – the Tom Yam Kung crisis in 1997, the Hamburger crisis in 2008, and [the flood] disaster in 2011,” Thanavath said.

This year, amid high global uncertainties, the government’s planned Bt350-billion water-management investment may be delayed while the prospect of its Bt2-trillion infrastructure investment is not bright. The GDP growth rate could be slower next year if these investments are postponed, he said, adding that the situation reflects the country’s low resilience to external factors.

He holds high hope that the global economy will bottom out in the current third quarter and this should pull up the Thai economy. Domestically, the government’s policies to release rice stockpiles, to maintain gas prices and to increase financial injection will boost the economy in the fourth quarter. However, if things – such as economic problems in China and the euro zone as well as domestic political instability – tilt towards the worst-case scenario, the growth rate would be only 3-4 per cent this year as exports may grow by only 1-3 per cent. 

Based on the 4.3-per-cent GDP growth forecast, the UTCC projects export growth of only 3-5 per cent against the Commerce Ministry’s target of 7-7.5 per cent. The exchange rate this year is expected to average Bt30.3 to the US dollar, while inflation will stay low at 2.5 per cent. 

According to the study, the agriculture sector will grow by only 1.8 per cent this year because of dropping crop prices, the industrial sector will show growth of only 1 per cent, and private consumption will grow by 3.2 per cent. Investment is projected to increase by 6.4 per cent, while tourism seems to be the strongest sector to support economic growth.

The driving force for the economy this year is tourism, said Thanavath, with expected arrivals of 25.08 million. That number, up 12.46 per cent from last year, will generate Bt1.1 trillion in revenue, a 14.26-per-cent increase from last year.

The economy is in a fragile stage. Any shock could disturb the positive prospects, he added.