Lower-than-expected consumption and private investment have prompted the Fiscal Policy Office to revise downward its forecast for economic growth this year, and it has suggested more tax breaks to boost consumer purchasing power.

The moves came as the Cabinet approved broader tax allowances on mortgage-interest payments, lifting the qualifying interest level from Bt50,000 to Bt100,000 per year. It also approved the lending of Bt44 billion by state banks to low-income earners.

Critics consider that neither measure is sufficient to buoy the economy.

Kanit Sangsubhan, director-general of the Fiscal Policy Research Institute, which is the Finance Ministry's think-tank, suggested that tax breaks be given to consumers to boost consumption and the economy. "Further cuts in interest rates may not help much, but fiscal measures would boost [consumer purchasing power and] growth," he said.

The Bank of Thailand cut its policy interest rate to 3.5 per cent last week, completing a tumble of 1.5 percentage points since early this year. It also said that the rate had reached the bottom, suggesting that there will be no further cuts.

Kanit warned that appreciation of the baht against the US dollar remained a risk to the export sector. Although export growth at a high rate of 18.27 per cent was recorded in the first four months of the year, it expanded by only 6.26 per cent in baht terms. Lower baht earnings means lower incomes for workers, which leads to lower consumption, he said.

Finance Minister Chalongphob Sussangkarn said that the government's revenue collection for the current fiscal year was expected to fall short by Bt30 billion due to slowing economic growth. The higher tax allowances on mortgage-interest payments alone will cost between Bt2.5 billion and Bt4 billion in revenue.

The Fiscal Policy Office now expects growth this year to amount to between 3.8 per cent and 4.3 per cent. In February, its projection was 4 per cent to 4.5 per cent, compared with 5 per cent last year.

Separately, the University of the Thai Chamber of Commerce (UTCC) predicted that growth in gross domestic product (GDP) could fall below 3.5 per cent if violence follows today's Constitution Tribunal verdicts on electoral fraud by political parties, and no election is held by the end of the year.

"The judgements will be the key to determining whether the country's economy will go up or down," said the director of the university's Business and Economic Forecasting Centre, Thanawat Phonwichai. He said foreign investors were closely monitoring the situation and further political uncertainty could discourage new investment.

The business sector is concerned that the economy will

fail to pick up as expected in

the third quarter if there is

violence following the ver-

dicts. Even if there is no

violence, Thanawat pointed out

 that Thailand would still lag behind its neighbours, due mainly to political

uncertainty and fluctuating oil prices.

Fiscal Policy Office director-general Pannee Sathavarodom attributed the office's revised economic forecast to the fact that household consumption is now expected to grow at a dismal rate of 2.3 per cent this year, much lower than last year's 3.1 per cent.

In addition, private investment is expected to expand by only 0.5 per cent, sharply down from 3.9 per cent last year.

Due to lower import growth, Pannee believes the current-account surplus will increase to 4.9 per cent of GDP this year, compared with earlier estimates of 1.1 per cent and last year's figure of 1.5 per cent.

Among the few encouraging economic indicators is positive growth in the import of capital goods in April, following four months of negative growth.

"Political uncertainty and volatile crude oil prices have adversely affected the confidence of consumers and investors," Pannee said.

Yesterday, the UTCC also revised downwards its growth forecasts for all regions.

The worst performer is the South, where recent bomb blasts have led the university to predict economic growth there of only 2.73 per cent, compared with the previous forecast of 4.05 per cent. The new forecast is the lowest since 2001.

Moreover, the projection for the deep South - covering Songkhla, Satun, Yala, Pattani and Narathiwat - came down from 2.4 per cent to 1.9 per cent. The five provinces generate 36.6 per cent of the South's gross domestic product, while the South generates 8.7 per cent of the Kingdom's GDP.

"The lower growth in the five provinces means a loss of Bt10 billion in economic value," Thanawat said.

The chief of the Comptroller-General's Office in Songkhla province, Sunee Kuldilok, said all business sectors in the deep South had reached a critical point because of the worsening violence. First-quarter tourist arrivals plunged 55.4 per cent year on year to 263,964. In the same period, auto sales dropped 10.47 per cent while private investment fell 52.18 per cent to Bt248 million.

A joint study by the UTCC and the Comptroller-General's Department shows that the economy in Greater Bangkok will grow by 3.77 per cent this year, down from a previous forecast of 4.24 per cent.

Growth in the Central region is expected to be 4.73 per cent, compared with earlier predictions of 5.27 per cent; the North is down to 3.55 per cent from 4.2 per cent; and the Northeast is expected to grow by 3.26 per cent, down from earlier expectations of 4.03 per cent.

The university earlier revised downwards its forecast for Thailand's overall economic growth, from 4.5 per cent to 3.8 per cent, mainly due to political uncertainty.

Wichit Chaitrong,

Petchanet Pratruangkrai

The Nation