FTI may cut GDP growth forecast, says help for SMEs came too late

Other factors hurting the economy are the drought, the continuing slump in exports since last year, and low industrial confidence.

Early in the year, the FTI thought gross domestic product would be able to expand by 3.8-4.0 per cent. Last month, it cut that forecast to 3.0 per cent, citing a 4.2-per-cent contraction in the export sector in the first five months of this year as the main reason. 

The federation now expects that the export sector will contract by at least 2 per cent this year.

To help SMEs, the government recently introduced policy loans with 4-per-cent interest rates and increased the ceiling for the Thai Credit Guarantee Corporation (TCG) – too late, said FTI chairman Supant Mongkolsuthree.

“We will have to wait and see if financial institutions give out loans after the increased guarantees,” he said after appearing as a panellist at an economic seminar arranged by the National Legislative Assembly yesterday. He said the effects of the drought had been factored into the FTI’s 3-per-cent GDP growth forecast, but if these turned out to be more severe than expected, the forecast might have to be changed again.

“We will have to wait and see the numbers in October before we make any more revisions, while the government’s measure to fix the crop prices is also one of the things that we are keeping an eye on,” he added. 

He said SMEs that had been hit by the economic slowdown no longer had the ability to make new investments because of the shortage of capital caused by lower sales.

Imports of raw materials for production have contracted by around 10 per cent so far this year, while many businesses have also reduced their overtime hours. Industrial sentiment has dropped for six months in a row.

“The confidence of smaller SMEs has dropped significantly,” he said.

Meanwhile, the value of the baht at around 34 per US dollar is suitable and it strikes a good balance between its support for exports and domestic investment, but there is now some concern regarding the pace of its depreciation.

The baht has depreciated from 32.835 on April 29 (the day the Monetary Policy Committee decided to cut the key interest rate for the second consecutive time) to 34.604 as of 3pm yesterday, its lowest value since June 2009.

“The weaker baht has helped the export sector in terms of increases in profit, and that has boosted the confidence of exporters, but I do not want to see it depreciate too fast, as that would affect the country’s financial stability,” Supant said.

 “The current value of the baht is suitable and it should not exceed 35 per US dollar in the near future as that would be too fast. If it exceeded 35, it would be harder to pull back and it might keep on going, but we are not too worried as other currencies in the region have depreciated before us and Thailand’s financial fundamentals are still strong,” he added.