News Column

BoT upbeat on growth

August 28, 2014

By Pathom Sangwongwanich, Bangkok Post, Thailand

Aug. 28--The central bank is now more optimistic about economic growth this year, believing it has high potential to reach 2%, up from earlier projections of 1.5%.

Bank of Thailand governor Prasarn Trairatvorakul told the Thailand Focus 2014 forum 2% growth was achievable if the economy grew by 3-4% in the second half. Previous projections assumed slow public spending and poor sentiment for domestic spending and exports.

But the Thai economy has proven it can resume its full growth potential, he said, reiterating the National Council for Peace and Order (NCPO) had not pressured the central bank to increase economic growth.

Thailand's economy has the potential to grow by 4% to 4.5% annually, but political instability and natural disasters occasionally stifle growth, said Mr Prasarn.

"Stimulus measures should facilitate productivity without too much of a burden, comprising infrastructure development, accelerating fiscal expenditures and stimulating private investments," he said.

Thailand's macroeconomic fundamentals remain sound, said Mr Prasarn, citing low inflation, minimal unemployment, a strong commercial banking sector, a manageable public debt ratio and relatively high foreign reserves.

Concerns about swelling household debt have eased as bank loan growth slowed to 6-7% due to stricter approvals, while corporate and public debts remain manageable, he said.

The Thai economy contracted 0.6% in the first quarter, but growth rebounded to a 0.4% rise in the second quarter, resulting in a 0.1% contraction in the first half.

Mr Prasarn said investor confidence remained crucial because long-term investment could happen if investors remain confident.

Tax reform has to be implemented at the appropriate time, he said, citing Japan's consumption tax hike to 8% from 5% denting consumption.

A flexible foreign exchange rate and foreign reserves are tools for the central bank to mitigate financial risks. As economists await a US Federal Reserve fund rate hike, external volatility remains a risk factor, he said.

Mr Prasarn is certain Thailand's economy has the potential to grow by 5% over the 12 months from this past July, given political stability and productivity gains.

"Our forecast of 5.5% economic growth next year is not too high because it is in line with the country's growth potential and there will be a low base this year," he said.

Other policies from the supply side will support growth, namely education, labour skills and physical infrastructure development, said Mr Prasarn.

Fiscal expenditures are expected to accelerate, lessening the burden shouldered by monetary policy and helping to drive growth, he said.

ACM Prajin Juntong, head of economic affairs for the junta, forecast growth of 3% to 3.5% in the second half and 2% for the full year.

He said the NCPO remained committed to a new general election scheduled for early 2016.

Foreign investors are interested in domestic consumption stimulus, said Ornkanya Pibuldham, country head of Bank of America.

She said it would be better if the junta lifted martial law, as the tourism industry could recover and help the overall economy.

More than 60 large foreign fund companies with combined assets of US$2.55 trillion or 81.4 trillion baht, of which 700 billion baht are allocated in Thailand, are participating in the three-day Thailand Focus, which runs through tomorrow.

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Source: Bangkok Post (Thailand)

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