Investment needed to hit growth target

Economy July 10, 2014 00:00

By The Nation

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Central bank's MPC expects the economy to reach full potential next year with 5.5 per cent gdp growth

New investment-focused measures are required for the economy to meet the 2.5-per-cent growth target set for this year by General Prayuth Chan-ocha, head of the National Council for Peace and Order, according to the Bank of Thailand.

Governor Prasarn Trairatvorakul said yesterday that the central bank’s Monetary Policy Committee (MPC) forecast 2014 growth of gross domestic product at just 1.5 per cent, based on current measures.

The MPC expects the economy to begin reaching its full growth potential of 5.5 per cent next year, and that could prove that there is nothing to worry about.

The BOT sees investment as crucial to drive growth in areas such as infrastructure, human resources and knowledge – all in need of a cash injection.

“If there is any investment, particularly from the public sector, the private sector will follow, and this will help propel the economy in a sustainable fashion,” Prasarn said.

In response to the NCPO’s request to keep the baht from appreciating so much that it handicapped Thailand’s export competitiveness, Prasarn said the currency was currently in line with the country’s economic fundamentals.

The baht is not gaining too much or weakening, compared with its regional peers, he said.

Consumer confidence has clearly recovered and that could boost consumption. In the past when political tensions eased, consumption made a relatively fast recovery.

However, consumption may not pick up as fast as before, given the household-debt problem.

The tourism industry may need two to three months to stage a comeback when it enters the high season.

Export growth slower than expected

Now, although the economic situation in the world and in Thailand’s trading partners has been steadily improving, export growth is slower than expected and may not be relied on to help shove the Thai economy up sharply.

Although this year’s economic performance may not be up to what the

NCPO desired, the MPC’s estimated growth figure is not a concern, Prasarn said, given the signs of recovery, particularly for this latter half of the year.

The MPC projects GDP growth at 3.4 per cent for the second half.

“When we talk about growth, the average figure needs to be considered. We expect contraction for the first half. In the second quarter, the economy started to remain steady and is expected to improve in the latter half.

“Growth is estimated at 3.4 per cent in the third and fourth quarters. There-fore, there is not a concern if growth ends up at 1.5 per cent for the whole year,” he said.

Now, rising household debt remains a risk to growth despite its recent slowdown. The authorities are monitoring the purchasing power of households, particularly low-income families. If this group’s debts remain high, recovery of consumption could be delayed.

Monitoring is also required for the major economies, particularly China and the United States and their monetary policies.

The US and British recoveries are at satisfactory levels, while the European and Japanese recoveries are lagging. If these economies start tightening their monetary stances more, that could squeeze global liquidity, he said.

However, that is not much of an issue, given Thailand’s relatively good immunity, he added.