Improved business and consumer confidence from greater political stability, rising purchasing power from declining oil prices and a pick-up in private and public investment because of faster-than-expected budget disbursements will all help boost economic momentum next year, said BOT Assistant Governor Atchana Waiquamdee.

Both exports and domestic demand will play a crucial role in next year's economy, after domestic demand weakened this year. A slowdown in the global economy will slightly dampen export growth by 6-9 per cent next year, but public investment will bring a "crowding in" effect on private investment, with growth of 7.5-8.5 per cent.

The BOT forecasts that public spending of Bt1.6 trillion will be injected into the economy in the next calendar year, an increase of Bt71 billion on its previous forecast, pushing total investment to 8-9-per-cent growth. Public and private consumption is expected to grow 4-5 per cent.

Tarisa Watanagase, the BOT's governor-designate, said damage from flooding across the Kingdom was expected to cost Bt20 billion, which would adversely affect economic growth to the tune of about 0.09 per cent.

The central bank is considering providing soft loans in the inundated areas, hoping to distribute financial aid to the worst affected.

"The [economic] impact is not much, but a lot of people have been affected. Rural folk clearly make sacrifices for the economy of the urban provinces," said Tarisa.

Flood damage covers 672,000 hectares, or 3.2 per cent of all farmland. Farm production is expected to decline by Bt8 billion, but farm incomes will suffer only slightly, because of high stocks.

Atchana said the floods would not push up core inflation much. It is expected to grow 2-2.5 per cent this year and 1.5-2.5 per cent next year. Headline inflation is expected to rise to 4.3-4.8 per cent this year and 1.5-3 per cent next year.

The BOT estimates that the price of crude oil in the Dubai market will stand at about US$69 (Bt2,500) per barrel from now to next year's third quarter, down from its earlier forecast of $71.

However, the impact of geopolitical risk on Dubai crude oil prices, of the global economy on exports and of the political situation on business confidence remain risk factors for the economy next year and could make these economic growth figures drop below the estimates.

The central bank earlier predicted the economy would grow 4-5 per cent this year and 4-5.3 per cent next year, with headline inflation 5-5.6 per cent this year and 2.5-4 per cent next year.

Tarisa said the central bank wanted to be sure of an apparent decline in inflation before deciding to cut its policy interest rate. Oil prices are not yet sustainable and remain a risk factor for economic stability.

Atchana said movement of the policy interest rate depended on inflation rather than on foreign exchange.

During this second half, the economy has continued to grow at a satisfactory pace, due to higher-than-expected export growth. For this year's third quarter, economic growth will probably be seen as similar to that in the second quarter, which showed 4.9 per cent growth.

Anoma Srisukkasem

The Nation