POLITICAL TURMOIL
Fitch warns over effects on growth
James McCormack, senior director and head of Fitch’s Asia Sovereign Ratings, speaking at yesterday seminar.
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Outlook at risk if crisis drags on: agency
Fitch Ratings might revise down its outlook for the country's economic growth if the political turmoil is prolonged. "An unexpectedly chronic political environment would cause the agency to review Thailand's medium-term growth prospects, and could cause a more disruptive response for the country's financial market," James McCormack, senior director and head of Fitch's Asia Sovereign Ratings, told a seminar yesterday. However, if the political uncertainty that has hurt growth in gross domestic product - particularly in domestic consumption and investment - can be cleared up later this year, economic growth could rebound next year to 4.6 per cent, from the 4.3 per cent estimated for this year, Fitch said. For now, the international credit rating agency is maintaining Thailand's sovereign credit rating despite the political turbulence, thanks to a steady decline in the government's debts and a robust external liquidity position. Fitch rates the country's credit at BBB+. The Kingdom's foreign reserves have reached nearly US$60 billion (Bt2.2 trillion). The consumer confidence index this year could decline to 15 per cent from 20 per cent last year and the retail sales index would also decrease to around 2 per cent this year from about 13 per cent last year, Fitch said. The consumer confidence index and retail sales index stood at around 40 per cent and 20 per cent, respectively at the time of the general election in 2004. Exports remain the main economic engine, though the global economy is expected to slow down, the agency added. Prasarn Trairatvorakul, president of Kasikornbank, was not optimistic about the political climate, saying it would probably continue to drag on economic growth next year. He said the general election would likely be delayed to November from the scheduled date of October 15, due to the technical process of selecting a new Election Commission. After the poll, the new government would be set up with the task of enacting political reform, a process that could take one to one-and-a-half years. That might be followed by a general election in the second half of 2008. "Until then, there will be some short-term challenges. The economy will continue underperforming as the new government cannot proceed with long-term policies such as free-trade agreements," he said. Kasikornbank sees GDP growth next year slowing to 3.5-4 per cent from 4-4.5 per cent this year. "When the new government can't function fully because it has to concentrate on political reform, it would throw cold water on investment from both the government and private sectors. That would put pressure on economic growth, as well as the banking industry," Prasarn said. Banks are weighing the impact from the negative factor on their business plans for next year. However, political issues are only one element of the risk picture for the banking industry in 2007. Other potential pitfalls are oil prices and investor confidence. "The new government should rebuild investor confidence, to help drive the economy. Currently, investor confidence is bearish," he added. Somruedi Banchongduang The Nation
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