Trade deficit up, growth will slow

Political turmoil and spiralling oil prices are pulling down Thailand's economic growth rate to below 5 per cent and the trade deficit will hit a three-year record high of US$3.9 billion (Bt131.3 billion) this year, according to the University of Thai Chamber of Commerce (UTCC).

The university's International Trade Studies Centre warned yesterday that several economic indicators - the uncertain political environment, rising oil prices, the slowdown in the world economy, the weakening baht, and increasing interest rates - have directly affected exports and boosted imports. These factors will also push the inflation rate to record double digits in the second half of this year.

The centre said it expected the country to log a trade deficit of $3.9 billion, from last year's trade surplus of $12 billion, while the current account surplus will also sharply drop from $14 billion last year to $1.4 billion this year.

Exports are predicted to face slower growth by 16.9 per cent to $178.2 billion while imports will jump by 30.1 per cent to $182.1 billion this year. The centre's prediction of 16.9-per-cent export growth this year is based on a baht exchange rate of 33.6 to the US dollar.

 Centre director Aat Pisanwanich said that political turmoil is an important

factor damaging the Kingdom's economy. It has not only reduced investment but also exports and tourism industry revenue.

"Thailand's economy will fall into a vacuum if the political situation worsens as there would be no concentration on the economy," said Aat, adding that in the worst-case scenario, the economy will grow less than 5 per cent.

He said inflation is expected to heat up to 13.1 per cent in the second half of the year, based on an average oil price of $122.3 per barrel. The annual rate of inflation will increase to 9.7 per cent.

The worst-case scenario expected inflation to hit 12 per cent this year, when average oil price is $131.2 per barrel. This will lead to a $6.87-billion trade deficit, as export growth would be 13.5 per cent to $173 billion against 28.5 per cent growth in imports to $179 billion. The scenario's probability will increase 30 per cent if the political situation worsens, said Aat, adding that external factors include a downturn in the global economy.

Aat said that for every one-per-cent increase in oil prices, inflation will increase 0.34 per cent, while export growth will slow by 1.8 per cent.

The current account deficit will increase due to slowing tourism in the second half as travellers tighten their belts amid concern about political conditions.

To boost confidence of travellers and the private sector, Aat suggested that the government accelerate solving the current political disorder.

Moreover, the government must try to stimulate the country's domestic economy to ensure that it would not grow lower than 5 per cent this year.