THE central bank is keeping a close watch for any signs of strain on the economy from rising oil prices and is encouraging curbs in consumption to advance the goal of energy savings.
The Bank of Thailand’s (BOT) concerns were aired shortly before the Energy Policy Committee on Thursday agreed to maintain a cap on the price of diesel at Bt30 a litre in a bid to ease the impact on businesses and farmers. The committee, convening in an urgent response to the price rises, resolved to use the state’s Oil Fund to subsidise the diesel price and for a related measure to cut the price of liquefied petroleum gas to Bt363 per 15 kilograms, from Bt395, effective from Monday. In recent years the diesel price has been far below the cap.
BOT governor Veerathai Santipraphob expressed his concerns about the impact of the higher prices triggered by the steady climb in global crude oil prices, citing Thailand’s import of large quantities of crude for the needs of industry and consumers.
“We have to closely monitor the oil prices as the cost of imported oil is relatively high considered as a proportion of the country’s gross domestic product,” Veerathai said.
The costlier oil may affect domestic consumption, increase costs for businesses and hurt the whole economy, he warned.
The march in global crude prices has been caused by a recovery in the international economy, which spurs demand for the key commodity, he said. Geopolitical tensions have also contributed to the higher prices as some oil exporters have been unable to maintain supply, the BOT chief added.
“The most important thing is that we have to review our large consumption of oil and natural gas as a percentage of our GDP. We must embrace energy savings in order to reduce the cost for our economy,” Veerathai said.
Thailand imported Bt677.6 billion in crude oil last year, when the benchmark price averaged US$55 a barrel. In 2014, the import bill was Bt979.7 billion, when the average price was US$102 a barrel, according to the Energy Ministry. Thailand’s gross domestic product was about Bt15 trillion last year.
Commerce Minister Sontirat Sontijirawong said that increased oil and as prices had not yet prompted suppliers of consumer products to increase their retail prices.
He said that, after a meeting with representatives of the major consumer product suppliers, they told him that they had not yet felt the cost pressures from the higher prices and so have kept product prices steady. The costlier oil and gas have yet to dent the optimism for the economy within government.
The Ministry of Finance’s Fiscal Policy Office plans to raise its forecast for economic growth to 4.5 per cent this year from an earlier estimate of 4.2 per cent after a better than expected performance in the first quarter.
Kulaya Tantitemit, finance inspector-general and a finance spokesperson, said: “We will formally announce the rise in the GDP growth estimate in the next two months. The estimated expansion at 4.5 per cent is the highest in six years, since 2012, when the Thai economy grew 7.2 per cent due to the low base in 2011 as a result of the floods.”
The planned upward revision comes also draws on the estimates of improved economic growth in Thailand’s trading partners, reflecting reduced risks to the global economy, Kulaya said.
Soraphol Tulayasathien, director of Macroeconomic Policy Bureau at the FPO, said that the US-China trade dispute has eased amid positive signs for the negotiations between the economic superpowers, and this would help boost Thai exports to the United States and China. An easing in political tensions between North Korea and South Korea was also positive, Soraphol said.
Most economic research houses plan to raise their forecasts for economic growth this year after the National Economic and Social Development Board (NESDB) announced the better than expected GDP expansion for the first quarter.
The grew 4.8 per cent for the year’s first three months, the fastest pace of quarterly growth in five years, compared with the previous quarter’s growth of 4 per cent.
Kulaya said that public investment this is expected to rise by almost 10 per cent, compared with a previous projection of 8.9 per cent, while private investment is anticipated to increase more than 3 per cent.
Exports are forecast to grow 8 per cent this year. On the currency front, the baht is projected to depreciate from a previous estimate of 31.5 to the US dollar, Kulaya said. Inflation for 2018 is expected to come in at 1.4 per cent compared with an earlier estimate of 1.2 per cent.
Wichayayuth Boonchit, deputy secretary-general of the NESDB, said that all the economic engines for the first quarter – from consumption, private investment, public investment and public spending to export and imports - expanded simultaneously for the first time since the third quarter of 2011.