The quarter-point cuts in the forecasts for both years were prompted by anticipated slowing growth in both public and private investment, which the BOT expects to be 4.5-5.5 per cent this year, down from its previous forecast of 7.5-8.5 per cent.

The central bank forecasts that next year overall investment will grow by 6-7 per cent, down from the 8-9 per cent it previously forecast.

In terms of government spending, the central bank said that in the best-case scenario the budget for the next fiscal year would be delayed for nine months, with only Bt120 billion in carried-over budget and Bt130 billion in binding budget obligations disbursed in the first three quarters.

In the last quarter of the next fiscal year, Bt604.3 billion of the government's investment budget is expected to be disbursed, an 8-per-cent increase over the final quarter of this fiscal year.

Bt931.7 billion of the current fiscal budget year is forecasted to be withdrawn, up 5.7 per cent from last year.

In the BOT's worst-case scenario, the budget for the next fiscal year will not be disbursed at all due to the delayed general election.

BOT assistant governor Atchana Waiquamdee said private investment had slowed largely due to soaring oil prices and worsening business sentiment stemming from the political stalemate.

Public investment is expected to grow only 4.5-5.5 per cent this year and 3.5-4.5 per cent next year, compared to 7-8 per cent and 8-9 per cent in the previous projection. Private investment is projected to rise 4.5-5.5 this year and 7-8 per cent next year, down from 7.5-8.5 and 8-9 per cent respectively.

Atchana said that the delayed public investment would not be a concern because government spending contributed only about 15 per cent to gross domestic product and the carried-over budget and binding budget obligation would bolster the economy.

"We should not be so pessimistic as to think the delayed government investment removes the economic driver. The budget disbursement is usually delayed, and there are other investment projects that do not rely on the government budget," she said.

Exports and private consumption are expected to be key economic drivers next year. The central bank has maintained its previous forecast that export growth will be 11-13 per cent this year and 6-9 per cent next year, as the global economic growth slows from 4.7 per cent this year to 4.2 per cent next year. In particular, global demand for electronic goods is expected to soften next year.

The US federal funds rate is expected to rise to 5.5 per cent from the current 5.25 per cent. The BOT had earlier projected the rate at 5 per cent.

Atchana said private consumption would rebound in the first quarter of next year as purchasing power increased due to lower headline inflation in the second half of this year. Private investment will also pick up as oil prices stabilise, she said.

"Although the oil price remains high, steady prices will dispel uncertainty. The business sector will know the exact costs of production and ensure economic expansion," she said.

However, oil-price rises continue to pose a risk. The BOT forecasts the price of Dubai crude will be US$71 (Bt2,693) a barrel in the best-case scenario until the end of next year and $86 a barrel in the worst-case scenario.

Retail prices of diesel and petrol will be Bt28.9 and Bt32 per litre respectively, the central bank forecast.

It raised its headline inflation forecast to 5-5.8 per cent from 4-5 per cent this year and 2.5-4 per cent from 2-3.5 per cent next year. Its forecast for core inflation remained unchanged.

Meanwhile, a report from the Monetary Policy Committee noted that households had not slowed debt spending but their debt-servicing ability was declining.

This will weaken the financial health of households and pose a risk for the overall economy, it said.

Anoma Srisukkasem

The Nation