Thai economic growth next year is expected to surpass the 2006 level, despite anticipation of lower export growth due to continued appreciation of the baht.

Deputy Prime Minister and Finance Minister MR Pridiyathorn Devakula expressed confidence yesterday that the economy would expand by 4-5 per cent next year.

"Many agencies are more optimistic about the growth rate following the continued drop in oil prices, faster disbursement of the budget, as well as the 2006 growth rate revision from 4.2-4.7 per cent to 4.5-4.7 per cent," he said.

He expects budget disbursement to start on January 1, rather than on July 1 as earlier anticipated.

Today, all oil retailers are lowering their prices by 40 satang per litre, in response to the drop in global crude prices. Ampon Kittiampon, secretary-general of the National Economic and Social Development Board, said the move would further reduce inflationary pressure.

"The outlook is positive if global oil prices do not exceed US$60 [Bt2,200] per barrel and if the government can promote more investment. But risk factors are the strong baht and oil prices," he said.

The University of Thai Chamber of Commerce (UTCC) forecast yesterday that the Kingdom's 2007 exports would expand between 9 per cent and 11.5 per cent to $141 billion, much lower than the Commerce Minis-try's expectation of 15-per-cent growth, due to the baht's appreciation against US dollar.

The university expects the baht to average Bt36.3 per dollar next year, due mainly to capital inflows. Chief among them is the GE Group's Bt22-billion acquisition of a stake in Bank of Ayudhya.

Foreign direct investment will drive the baht up, alongside an increase in tourist arrivals. The university estimates that tourist arrivals will increase from 13.9 million to 14.7 million. Income for the sector will jump from Bt491 million to Bt540 billion.

Thanawath Phonwichai, director of the university's Economic and Business Forecasting Centre, said the baht's appreciation would be a key factor affecting next year's export growth, while the large export base also carries weight.

The centre estimates that this year exports will grow between 15.3 per cent and 16.3 per cent, or $127.9 billion to $129 billion.

However, the Commerce Ministry's Export Promotion Department targets growth of 17.5 per cent to $130 billion this year. Exports grew by 16.4 per cent to $95.6 billion in the first nine months of the year.

To mitigate the stronger baht's effect on exporters, Thanawath suggested exporters conduct future contracts, and called for the government to proceed with a policy to stabilise the currency.

The university also forecast that the Kingdom's overall economic growth next year would be 4.7 per cent - against the predicted 4.5 per cent this year - thanks to the clearer political situation, an expected improvement in tourism, and stronger agricultural and industrial trade.

Imports will rise by 12 per cent to $145.9 billion next year, it forecast. Therefore, Thailand will face a trade deficit of $4 billion to $6 billion, but will record a current-account surplus of $500 million to $1.5 billion. Inflation will grow slightly to 2.9 per cent from this year's 4.6 per cent, it said.

Thanawath said continuous growth of the world economy and a downward trend of interest rates in the United States would push the Kingdom's economic expansion.

"Although the world economy will tend to slow next year, Thailand should enjoy expansion of its domestic economy," he said.

According to the International Monetary Fund, the global economy will grow by 4.9 per cent next year, against 5.1 per cent this year. World trade will expand by 7.6 per cent from 8.9 per cent.

Other positive factors that will help drive the country's economy are interest rates, which should decrease by between 25 and 50 basis points, the government's policy to run a trade deficit, the urgent approval of budget disbursement, and the decrease in oil prices.

Oil prices next year will range from $58 to $63 per barrel, from an average of $61 to $65 this year.

Thanawath said the clearing of political uncertainty in the Kingdom should also raise domestic and overseas investor confidence. But he said if political conflict reoccurred, the economy would achieve just 4.5-per-cent growth next year.

The university estimates the flooding disaster will slightly reduce next year's expansion of the agricultural sector. It said the sector should grow by 4 to 5 per cent next year, from 4.5 to 5 per cent this year.

Overall, flooding will cause a Bt26.23-billion loss in agricultural areas, other related production and farmers' assets, it said. The figure represents 0.68 per cent of gross domestic product.

On the other hand, the industrial sector is predicted to grow by 6.5 per cent to 7.5 per cent, from 6-6.5 per cent this year. Positive factors driving expansion will be high demand in both the global and domestic markets.

Petchanet Pratruangkrai

The Nation