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Fed move may hit Thai growth

Investors stand next to the stockprice monitor at a private securities company in Shanghai. Asian markets ended mixed yesterday after investors took the US Federal Reserves

Investors stand next to the stockprice monitor at a private securities company in Shanghai. Asian markets ended mixed yesterday after investors took the US Federal Reserves

The US Federal Reserve's decision to taper its quantitative-easing (QE) scheme is feared by a United Nations body to put further pressure on the Thai economy next year, but the local view is more optimistic.

After earlier expecting Thai gross domestic product to grow by 4.5 per cent in 2014, the United Nations Economic and Social Commission for Asia and the Pacific (Escap) now estimates that the US move could slash that figure by 1.2-1.3 percentage points. Growth forecasts in Malaysia, the Philippines and Russia could be cut by about the same.

"The Thai economy's fundamentals are not strong enough. For that matter, any economy in this region, even China, would be affected to some extent," said the director of Escap's macroeconomic policy and development division, Anisuzzaman Chowdhury.

"I wouldn't say that it is strong enough to withstand the tapering affect. Household debt is also quite high in Thailand, and the same [is true] in other countries. Malaysia is another example of household debt being quite high. That would have an impact because a lot of this borrowing was with foreign money. And if that [funding] is pulled out, that would be a great difficulty.

"It is not just government debt, it is the household debt. The private debt is also quite high in some of these countries in the region," he told a news conference yesterday.

However, Kittiratt Na-Ranong, Thailand's caretaker finance minister, said he expected QE tapering to have only a slight impact on the Thai economy. He said this country's liquidity remained high thanks to current-account and trade surpluses as well as flexible foreign-exchange rates.

Parisun Chantanahom, Bank of Thailand senior director for the International Department, also expects the impact to be small, thanks to low external loan obligations. Still, it remains to be seen how financial markets will react.

In line with regional movements, the Stock Exchange of Thailand and the baht weakened yesterday. While the baht fell to 32.40 per US dollar, the SET Index ended 3.23 points or 0.24 per cent lower at 1,346.63 points, on thin turnover of Bt25.8 billion.

In a statement after a two-day policy meeting, the Fed said on Wednesday that it would trim its US$85 billion a month in bond purchases by $10 billion starting in January. Chairman Ben Bernanke said the central bank expected to make "similar moderate" cuts in its purchases if economic gains continue.

At the same time, the Fed strengthened its commitment to record-low short-term rates. It said for the first time that it planned to hold its key short-term rate near zero "well past" the time when unemployment in the United States falls below 6.5 per cent. The country's official jobless rate is now 7 per cent.

The QE move "eliminates the uncertainty as to whether or when the Fed will taper and will give markets the opportunity to focus on what really matters, which is the economic outlook", said Roberto Perli, a former Fed economist who is now head of monetary policy research at Cornerstone Macro, a Wall Street research firm.

The Fed's bond purchases have been intended to drive down long-term borrowing rates by increasing demand for bonds. The prospect of a lower pace of purchases could mean higher interest rates over time.

Nevertheless, investors seemed elated by the Fed's finding that the US economy had steadily strengthened, by its firm commitment to low short-term rates and by the only slight amount by which it is paring the bond purchases. Emerging-market currencies fell, having previously enjoyed healthy rallies on the back of the stimulus as traders took advantage of Fed's cheap rates to seek out better returns.

The US dollar was a tad higher against the euro. Europe's single currency bought $1.3670, against $1.3680 in New York, and much stronger than the $1.3770 mark in Tokyo on Wednesday. The euro also slipped to 142.10 yen compared with 142.56 yen.

Against emerging-market units the greenback rose to 29.77 New Taiwan dollars from NT$29.69 Wednesday, to 1,060.22 South Korean won from 1,052.35 won, to 62.43 Indian rupees from 61.87 rupees, to 44.44 Philippine pesos from 44.29 pesos, and to 12,163 Indonesian rupiah from 12,126.

According to Escap's year-end update of its "Economic and Social Survey of Asia and the Pacific 2013", Asia-Pacific developing economies as a whole are forecast to grow by 5.6 per cent next year, up from 5.2 per cent this year, but lower than the 6.0 per cent growth earlier forecast for 2013.

"Asia-Pacific developing economies face the prospect of a 'new normal' of lower growth in the coming years, underlining the need for forward-looking macroeconomic policies and intra-regional cooperation," Chowdhury said.

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