Ministry slashes growth forecast

Poor sentiment drags down consumption

WICHIT CHANTANUSORNSIRI

The Finance Ministry yesterday cut its 2007 growth forecast to a range of 3.8% to 4.3% from 4-4.5% earlier as investment and consumer sentiment have remained weak due to political uncertainties. Pannee Stawarodom, the director-general of the ministry's Fiscal Policy Office, said private-consumption growth was now projected at just 2.3% this year, compared with 3.1% last year and previous forecasts of 3.7%.

While consumption growth on the government side was expected to be 10.8%, up from 3.4% last year, overall consumption growth could remain weak, at 3.5% overall compared with 3.2% in 2006.

Investment-growth forecasts, meanwhile, were cut significantly in the latest revision, to just 1% for the year compared with 4% last year. Private investment is projected to rise just 0.5% this year compared with 3.9% in 2006, while state investment is forecast to grow 2.2% compared with 4.5% last year.

The latest forecasts are considerably weaker than the Fiscal Policy Office's projections last made in February, when the office estimated that consumption and investment should pick up from 2006 figures as market confidence was expected to rebound on easing political concerns.

But business and consumer confidence indicators have remained weak over the past several months, while real interest rates adjusted for inflation have actually moved higher, despite moves by the central bank to cut its benchmark rate, now 3.5%.

Political uncertainties, continued violence in the southern border provinces and recent rises in oil prices have also caused investment and consumption figures to slow, affecting overall economic sentiment and growth forecasts.

Somchai Sujjapongse, an adviser to the Fiscal Policy Office, said moves to accelerate spending by government agencies and state enterprises would be critical to improving economic growth this year.

The government has set an ambitious disbursement target of 93% for the 1.57- trillion-baht fiscal 2007 budget. State enterprises are projected to disburse 85% of the 280 billion baht allocated to them for the fiscal year ending on Sept 30.

But the disbursements have been behind schedule due to delays in policy approvals and sluggishness within the state bureaucracy, raising uncertainty about whether the spending targets will meet their goals for the year.

''We expect the second quarter to be the weakest for the year, but that activity will begin to pick up in the third and fourth quarters,'' Dr Somchai said.

He said the events following today's highly anticipated court decision by the Constitutional Tribunal would have profound implications on the economy.

The tribunal is set to rule on whether the Thai Rak Thai and Democrat parties should be disbanded and/or their senior executives banned from future political activities du to reported election fraud during last year's aborted elections.

The government has placed police and security forces on alert over fears of mob clashes in the event that one or both of the leading parties are disbanded by the court. Political commentators also worry about a potential power vacuum if hundreds of the country's leading politicians are banned from standing in the next election, which the government has vowed to hold by the end of the year.

''If the parties are disbanded, but there are no serious clashes of violence, then the economic figures could move higher than forecast,'' Dr Somchai said, adding that the Fiscal Policy Office was due to next revise its projections in August.

Kanit Sangsubhan, the director of the Fiscal Policy Office's Policy Research Institute, noted that exports continued to be a bright spot for the Thai economy, with the first four months of the year showing export growth of 18.27% from the same period last year to $45.7 billion.

Exports over the period rose 12.7% in volume and 5% in price, but in baht terms, export growth was just 6.25%, with prices down 6% due to the stronger currency.

''We could see Thai exporters reduce their shipments if they see their profit margins continue to fall,'' Dr Kanit said.

''But multinational producers are less affected, as they repatriate their profits in dollars in any case.''