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Published on April 29, 2008

Wichit Chaitrong

The Nation

Consumption and investment fully recovered in the first three months of 2008, but whether the recovery will be sustainable depends on fuel prices and the political situation, Fiscal Policy Office director-general Pannee Sathavarodom said yesterday.

Speaking about her quarterly economic report, she said economic indicators suggested economic growth had gathered momentum in the first quarter.

Value-added tax receipts rose 11.5 per cent in the first quarter and 10.2 per cent last month alone, suggesting consumers were willing to spend because they had more confidence in the economy. By comparison, collections of value-added tax expanded 7.2 per cent in last year's fourth quarter.

Car sales rose 39.1 per cent in the first quarter and by 39.2 per cent last month alone, compared with a 22-per-cent contraction in last year's fourth quarter. Sales of motorcycles were up 2.1 per cent after contracting during all of last year.

Pannee said rising farmers' incomes resulting from higher prices for farm products had contributed to increased motorcycles sales. Salary increases for state officials and workers had also contributed to the recovery of consumption.

Private investment also recovered significantly, she said, as indicated by rising machinery imports, up 31.3 per cent in the first quarter and 18.3 per cent last month alone. This was much higher than the increase of only 0.8 per cent in last year's fourth quarter.

Sales of commercial vehicles rose 10.3 per cent in the first quarter, compared with a drop of 1.4 per cent in last year's fourth quarter. "The sustainability of private consumption and investment depends largely on the political situation and oil prices," Pannee warned.

Home sales were down in the quarter, because home-buyers are waiting for implementation of the government's new tax-incentive package, she said. Home sales are expected to rise in the coming quarters.

Government spending in the first quarter fell 8 per cent to Bt402.2 billion, due to a high level of spending in the same period last year. However, government spending in the first six months of the current fiscal year rose 6.9 per cent, suggesting government spending was still boosting the economy, she said. The value of Thailand's exports expanded 20.8 percent year on year to US$41.7 billion (Bt1.32 trillion) in the first quarter and 14.8 per cent to $14.8 billion last month alone. However, export volumes expanded at a slower rate of 9.9 per cent for the quarter and 3.8 per cent last month due to the slowdown of the world economy, down from 13.8 per cent in last year's fourth quarter.

Rising exports of farm products compensated for a slowdown in electronic products to afford overall export expansion in the quarter, Pannee said. Imports expanded in US-dollar terms by 38 per cent in the first quarter and 32.7 per cent last month alone. There was still a trade deficit of $1.2 billion.

Pannee said the Farm Production Index rose 9.3 per cent in the first quarter and 9.8 in March. The Farm Price Index for products soared to a 25-year record last month by increasing 25.7 per cent.

The Farm Price Index rose 15.8 per cent for the entire first quarter.High inflation is the main risk to the economy, but inflation rates of 5 per cent in the first quarter and 5.3 per cent last month are manageable, she said.

Pannee advised the government not to intervene in the rice market, saying farmers should be allowed to gain from rising prices.

Like many other economic institutions, the Fiscal Policy Office remains worried about rising oil prices.