News Room - Business/Economics

Posted on 26 Mar 2008

2008 6% GDP growth target out of reach (Thailand)

The government is likely to miss its target to lift economic growth to 6% this year because of high oil prices and ineffective fiscal stimulus measures, says Sethaput Suthiwart-narueput, a managing director of SCB Securities. 

Crude oil prices, meanwhile, are expected to remain high until next year as global demand will stay strong. Meanwhile, new supply from countries outside Opec would remain flat in light of rising refinery costs.

''Oil prices will not decrease meaningfully in 2009 despite a global economic slowdown. Over the past few years, China, India and the Middle East represented 47% of new global demand, while the USs, Europe and Japan comprised 14%,'' he said.

The return on capital for refineries when the crude price stood at $110 was on par with when the crude was priced at $30 per barrel in 2000.

Dr Sethaput, speaking at an economics conference yesterday, said the government's 40-billion-baht stimulus package, consisting mainly of tax incentives for new investment and long-term investment, would increase savings rather than consumption.

Meanwhile, the government's new plan to inject 35 billion baht to stimulate the grassroots economy would be transferred from the existing budget, he said.

''We cannot expect domestic demand to be strong this year. In the past, companies have hardly exercised tax incentives because they don't want to face close scrutiny by the Revenue Department,'' he said.

''It will be very difficult for the economy to grow by 6% in this year. The economy should grow about 4.5% because the world economy is not favourable.''

The US economic slowdown would lead to decreasing import demand and affect the country's exports. The US economic recession, if it happens, would be longer than the eight months experienced in 2001.

As well, labour-intensive industries such as textiles and food processing would be affected by the baht's appreciation.

''Employment and income in the labour-intensive sectors would be squeezed in light of the strong baht. Domestic demand could falter this year as high inflation reduces income,'' he said.

Nattawut Sachabudhawong, a senior economist at Siam Commercial Bank, said the baht should gain 7% this year to reach 30 to the dollar by December. The current account surplus is expected to decline because of both trade and service incomes. Foreign direct investment and portfolio investment are expected to increase slightly.

The dollar is expected to depreciate to 95-96 yen at the end of the year from 99.6 currently. Meanwhile, the euro is expected to stand at $1.58-1.60, up from $1.54 at present, Mr Nattawut said.

The baht has appreciated by 7% against the dollar since the beginning of the year, by 1.7% against the euro and 7.2% against the British pound.

''The baht weakened against the yen as the latter has gained rapidly against the dollar. The baht has surpassed the [Chinese] yuan. FDI, especially from Japan, which totalled $8 billion per year, has led to upward pressure on the baht,'' he said.

Suchada Kirakul, an assistant governor for the Bank of Thailand, said the decline in the country's trade surplus in the first two months of the year could help reduce upward pressure on the baht.

The central bank expects a current account surplus of $4-5 billion in 2008, compared to SCB's forecast of $7 billion. High oil prices could reduce the surplus, she noted.