Business confidence set to drop

The economy could continue to grow at a high pace in the second quarter due to the base effect, which would allow economic momentum to continue, said Amara Sriphayak, the BOT's assistant governor.

The expected Business Sentiment Index (BSI) over the next three months in March was 49.6, lower than the medium level of 50 for the first time in eight months. This indicated concern about continued increases in inflation and oil prices. Amara said business confidence was mitigated as investors were worried about rising operational costs. The worsened BSI could dampen private investment, which has picked up gradually since last year.

The BOT, however, was optimistic that the government's fiscal measures would help reduce production costs and lift private investment.

"We are concerned that if the cost of production increases, investors will delay their investments, but the government's tax measures and other factors would compensate for the soaring costs. However investment momentum in the third and fourth quarters will rely on the government's measures and sentiment," said Amara.

In the first quarter, the Private Investment Index expanded 7.2 per cent from the same period last year, compared with 4.1-per-cent growth in previous quarter. However, the index in March contracted 1.5 per cent from the previous month, compared with a 0.9-per-cent increase in February.

Meanwhile, the Private Consumption Index in the first quarter rose 7 per cent on year, higher than the 4.2-per-cent growth in the previous quarter. However the month-on-month index dropped 0.1 per cent in March, following a 1.7-per-cent contraction in February.