• 
• 

Published on January 26, 2008

Domestic demand - consumption and investment - will pick up and become the key engine of growth after the upcoming government takes office, it says, and export growth will be sluggish due to economic slowdown in trading partners.

The unchanged projection means incomes will increase at the same pace on average.

After the BOT's announcement, the Stock Exchange of Thailand Index jumped yesterday to 762.82 points before slipping back to close at 759.72, 4.1 per cent higher.

BOT Assistant Governor Duangmanee Vongpradhip said yesterday that the central bank had not cut its economic projection because the uncertainties had already been factored in.

The US Federal Reserve's 75-basis-point rate cut last Tuesday has not removed the uncertainty.

"The situation remains unclear. We must assess the direct impact of the sub-prime crisis on the Thai economy, which depends on whether we can decouple from the US economy. We must also evaluate whether the sharp interest-rate cut is enough to prevent the US economy slipping into recession," Duangmanee said.

The economic projection addressed possible problems under a worst-case scenario, that the world's largest economy would slip into recession for the first and second quarter on a quarter-on-quarter basis and then pick up to grow 1 per cent for the year. This is assuming the Fed trims its fund rate to 2.5 per cent this year.

A recession in the US would have a widespread effect on the global economy.

The BOT forecast that the Japanese economy would grow 1.6 per cent this year, the European economy 1.8 per cent and the Asian economy 4.4 per cent.

Earlier, BOT Deputy Governor Atchana Waiquamdee said the global economic slowdown meant a higher risk for the economy and a lower risk of inflationary pressure.

The reversal of economic conditions will require central banks to reconsider their monetary policies, Atchana said.

Duangmanee said despite a possible US recession, the value of Thai exports could grow 9-12 per cent this year, driven by rising prices, while export volumes would only increase 3.5-6.5 per cent, compared with an earlier forecast of 4-7 per cent.

The central bank predicts total consumption will expand 4.5-5.5 per cent this year, compared with 4-5 per cent forecast earlier. Total investment will grow 8.5-9.5 per cent, it said, compared with an earlier projection of 8-9 per cent.

Meanwhile, the US recession should lessen demand for oil, lowering crude prices, Duangmanee said.

The BOT projected that in a better-case scenario, the crude price in the Dubai market would average US$78.20 (Bt2,600) per barrel, compared with $100 in the worst-case scenario.

Anoma Srisukkasem

The Nation