Private sector pessimistic

Rising oil prices, political disorder, a fluctuating exchange rate, higher prices for consumer goods and lower consumer purchasing power will all slow economic growth in the second half.

Gross domestic product growth is projected to decline to 4-5 per cent in the third and fourth quarters, down from about 6 per cent in the first half of the year, the results from a new business survey showed.

"The private sector is pessimistic about the economy in the second half. Oil prices and political instability in particular will hamper their growth," said Thanawat Polvichai, director of the Economic and Business Forecasting Centre at the University of the Thai Chamber of Commerce (UTCC).

More than half of the 400 respondents expected second-half economic growth to be 4-5 per cent. The official growth target for the full year is 6 per cent.

Ninety-seven per cent of respondents said they were affected by rising fuel costs. About half said total revenue and profits had dropped in the first half and that the decline would continue in the second half. The deepest impact is expected to be felt in leather goods and shoes, construction and construction materials, and restaurants.

At an economic seminar yesterday, Democrat Party leader Abhisit Vejjajiva urged the government to pay attention to economic problems while letting political mechanisms solve political problems.

ING Funds Asset Management (Thailand) managing director Marib Tarab called politics a key indicator of the economy and said instability led to unclear economic policies. Thailand has apparently lost all hope, because the political situation has shown no sign of improvement, and only clarity will draw investors back.

Meanwhile, Nandor von der Luehe, chairman of the Joint Foreign Chambers of Commerce in Thailand, said Thailand had lost opportunities in the past two years, due to political problems.

Standard Chartered Bank (Thai) economist Usara Wilaipich told the seminar the Thai government needed clear policy, particularly regarding exports, now that high oil prices and the US economic slowdown were affecting manufacturers. High inflation will be a key challenge to Asia, and it will be exacerbated by the US slowdown. Since Thailand's economy has been buoyed by exports, growth could be affected next year, as seen through the negative export growth in Singapore's electronics and medical-supply sectors.

"At this stage, the government must come up with balanced fiscal and monetary policies. We must admit that it has not yet sent clear signals about how the manufacturing sector and consumers should adjust," she said.

Usara and Thanawat agreed the Bank of Thailand must raise its policy rate to counter inflation, which the UTCC expects to hit 7 to 8 per cent this year.

As core inflation is 3.6 per cent, above the 3.5-per-cent target, Usara foresees two 25-basis-point increases. Thanawat urges the rate increases to occur this month and in October.