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BOT governor worried about uneven growth next year

Dec 04. 2015
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By Achara Deboonme

The Nation

Bank of Thailand Governor Veerathai Santiprabhob has expressed concern about uneven economic growth next year that could be addressed only by integrated macro-economic policies.

In an exclusive interview with Nation Group, the governor said he was particularly worried about small and medium-sized enterprises in some sectors and the agricultural sector not benefiting from the economic recovery, which for the latter would face another year of low commodity prices.

"We will experience stronger growth momentum next year, with stability occurring in and outside the Kingdom to some extent. What’s worrying is that the growth could be uneven and each economic sector could experience uneven benefits," he said.

On the plus side, a record 32 million tourists are expected this year. The construction sector and related industries are also expected to benefit from the government’s infrastructure investments.

Citing the small contribution of government spending to gross domestic product, Veerathai noted that the Board of Investment’s scheme to promote manufacturing clusters would play a bigger role in lifting the country’s competitiveness and investment. This is in light of structural changes in several economies particularly China, which would further dampen Thailand’s exports.

As an example of these changes, only 30 per cent of what China spends on imports from Thailand is for raw materials, against 60 per cent in the past.

Simply put, the Thai economy is like a car whose engine is in need of an overhaul, he said.

Veerathai stressed the need for structural adjustments in Thailand’s growth drivers to enhance competitiveness and sustainable economic growth.

He said farmers, whose problems could be exacerbated by drought next year, should embrace modern techniques or be offered alternative career choices.

Amid uneven growth, he said companies needed to diversify risk further. For exporters, hedging tools are necessary, as the anticipated rise in US interest rates and the further relaxation of rates in Japan and the European Union promised two-way movements of exchange rates.

The BOT has penned a 3.7-per-cent growth forecast for 2016, after 2.7 per cent in 2015. Veerathai predicted that inflationary pressure would remain low next year, thanks mainly to low oil prices. He insisted that Thailand was not experiencing deflation as consumption was still increasing.

In November, headline inflation was minus-0.97 per cent but core inflation, excluding energy and food prices, rose by 0.88 per cent.

He also insisted that Thailand’s financial stability could withstand global turbulence thanks to buffers. A limited impact from capital outflows is anticipated.

Unlike some emerging markets, Thailand’s foreign debt remains low at one-third of foreign reserves, which stood at $156 billion as of November 20. So far this year, foreign investors have sold more than Bt120 billion net in Thai shares.

"Our reserves are high. The country will not be affected in the event of outflows," the governor said.

Despite slower credit growth and the financial dramas at Sahaviriya Steel Industries, liquidity as a whole remains sufficient, he said, and although non-performing loans tended to increase in an economic cycle, Thai banks were leaders in Asia in terms of capital and loan-loss provisions. "The stress test shows loans to some large companies may turn sour. But none will match the SSI scale," he said.

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