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Published on September 26, 2007

The economy has been on a roller-coaster ride over the past year - from the highs of fiscal pump-priming during the end of ex-PM Thaksin Shinawatra's administration to the current malaise that has seen investment and consumption spending all but halt. This is the view contained in a new report by Moody's Investors Service.

The report, written by Daniel Melser and Sherman Chan, said the outlook had, however, improved of late as the coup-installed government now has firm plans for an election in December following the constitutional

referendum last month.

"Consumer and business sentiment is expected to start to turn around - though a full recovery will have to wait for after the election," the report said.

Economic growth will improve later this year and early next, as businesses and consumers take advantage of the low level of interest rates which have been aggressively eased by the Bank of Thailand.

 Industrial production and trade have been the lone bright spots in the economy over this past year, and the report expects them to continue to remain strong.

 There are no signs yet that the slowdown in US consumer demand has had significant effects on Thai exports over and above the difficulties that traders have had with the higher baht.

 Overall, the economy will expand by around 4.7 per cent this year, but as the political wrangling winds up and the domestic economy improves, growth should bounce back to 5.7 per cent next year, according to the report.

"Although the election is scheduled for December, we expect the domestic sector to start recovering thanks to a clearer political environment," it said. "Private consumption in August is forecast to rise 0.1 per cent compared to the same month last year. This will help to give local manufacturers extra support going forward, as they have been relying heavily on external demand in recent times. Total industrial output is expected to rise by 5 per cent year on year in August, following an impressive increase of 7.2 per cent in the previous month."

The slowdown in export growth in July was a little

worrying, as foreign sales have been the key driver of

 

 

economic growth in the past year. The surge of the baht earlier in the year dragged on the country's export performance.

Although the report still anticipates trade revenue to exceed the import bill, the trade surplus looks set to come in at around US$400 million (Bt13.6 billion) during August, which is a little below trend so far this year.

In its annual report on Thailand, the rating company also said the country's Baa1 foreign and local-currency government bond ratings were supported by a sustainable fiscal position and a macroeconomic performance that has so far largely withstood political uncertainties arising from the September 2006 military coup.

The stable outlook on the ratings anticipates that the junta and future, post-election government will maintain prudent policies and sustain the Kingdom's relatively good credit fundamentals.

"Thailand's rating indicators for the most part continue to place the country in line with its rating peers," said Tom Byrne, Moody's senior vice president, author of the ratings report.

The Nation