Unpredictable political factors could reduce gross domestic product (GDP) growth by 0.5 percentage points this year, Naris Chaiyasoot, director-general of the Fiscal Policy Office, said yesterday. He told a press conference that the range of the office's economic forecast was between 4.5 per cent and 5.5 per cent and that exports would save the day.

Export volume is expected to expand 6.1 per cent year on year, up from 4.3 per cent last year. He said that export demand was still high as the economies of 11 of Thailand's trading partners were expected to grow an average of 3.5 per cent, close to last year's level of 3.6 per cent.

Exports in US dollar terms are expected to expand at 10 per cent, lower than last year's 15 per cent. The value of imports to the US should grow 9 per cent, much lower than last year's 26 per cent, according to Kanit Sangsubhan, director of the Fiscal Research Institute.

Meanwhile, the international ratings agency Standard and Poor's has expressed concern about the effects the "political noise" will have on the government's budget.

Although the April 2 election will have no immediate impact on Thailand's rating, "there is the risk that fiscal consolidation efforts will stall," said Ping Chew, Standard and Poor's team leader for sovereign ratings.

Naris conceded that the current political tensions would delay both government and private-sector investments.

Last month the consumer confidence index was 82, compared with 83.6 in December, because people were worried about politics, Naris said. Taking this into account, public spending on the government's mega-projects is expected to be around Bt151 billion, well short of the Bt290-billion target.

The overall mega-project investments would not be much affected by a delay of between three and six months. Whatever the election results, the next government is likely to continue with the mass transit system project, he said.

Overall investment is expected to expand between 6.4 per cent and 7.4 per cent, a slower rate than last year's 12.1 per cent, while consumption is expected to maintain the same growth rate as GDP - about 5.1 per cent. Consumption grew 5.7 per cent last year.

"This rate of consumption is all right," Kanit said.

The forecasts are based on the assumption that crude oil prices in Dubai will be around US$56.40 (Bt2,213) to $60.40 a barrel. The price will be higher than last year, but the price is expected to jump 20 per cent, compared with last year's 45 per cent, so the economic impact will not be as great, Kanit reasoned.

He said headline inflation would be much lower this year, at about 3 per cent, down from last year's 4.5 per cent.

Thailand is expected to record a current-account deficit of $4 billion, or about 1.5 per cent to 2.5 per cent of GDP, close to last year's deficit of 2.1 per cent of GDP.

The Fiscal Policy Office believes the exchange rate of the baht against the US dollar will average Bt39.60 per dollar this year.

Naris said tax collections continued to expand in January from both direct and consumption levies.

Meanwhile, the Kasikorn Research Centre has made economic prognostications based on Thaksin's move to dissolve Parliament.

It said mega-projects were likely to be postponed by at least one to two months, making it unlikely that investors would sign onto any joint ventures this year.

Stock market] sentiment is likely to remain unclear in March and April because investors are likely to wait to evaluate the situation, including the stability of the new government.

Kasikorn Research said the unclear political situation would make investors shift their money to long-term government bonds, squeezing long-term yields further. This will flatten the yield curve because short-term yields are likely to increase in line with the central bank's expected policy rate hikes.

Wichit Chaitrong

The Nation