Local economists see the global economy, including Thailand's, heading for growth but warn some negative signs should not be dismissed.
Virabongsa Ramangkura, an economic guru and former deputy prime minister, yesterday said the present economic recovery might be merely an illusion, because the stimulus packages were aimed at saving financial institutions.
"In my view, stimulus packages should focus on the real sector rather than the financial sector," he said.
He told a seminar looking at an overview of international economic experts and Thailand's economic outlook for 2010 that the recent financial crisis had been the worst in years. Surprisingly, once the crisis erupted, governments the world over proceeded in the same direction, which led to budget deficits.
Benefiting from the stimulus packages in many countries are the financial markets, thanks to lower financing cost. Although the markets have since showed improvement, companies have not reported a jump in earnings.
"The economic recoveries in the US and the EU remain unstable, as shown in financial problems in Greece, Spain and Portugal. So the recovery of the global economy remains fragile," he said.
Both the US dollar and the euro are weakening, and the balances of trade and current accounts are also not recovering. While the US and the EU were hit hard by the financial crisis, China and India were affected only slightly, because they were on the right track by putting money in investment budgets.
The Chinese government has speeded up its investments in infrastructure, in order to compensate for its weakening currency. It also pegs the yuan against the dollar, at the rate of 7 yuan to the dollar. Both its trade and current accounts are also in surplus, while its international reserves have climbed past US$100 billion (Bt3.32 trillion).
"Now, the centres of trade and investment have moved from the US and the EU to China. China's Finance Ministry and banking sector now have higher roles in the world than they had before. Meanwhile, hedge funds have had their roles reduced. Oil prices now rely on China instead of hedge funds," he said.
Market speculation post-crisis will be substantially different. There will still be doubt about what China will do with foreign exchange and commodities.
"In the future, the world economy will continue to weaken. Interest rates will remain low while inflation rates will be up - including in Thailand," he said.
Thailand's inflation is still low, because demand for products remains low.
"The key players in the world market will be China and India, while the US and the EU will be problems to the rest of the world," he said.
Thailand will follow the global trend. If the world recovers, it will be a halfway increase for Thailand; if it worsens, it will mean stagnation for the Kingdom. However, the high level of Thailand's international reserves will help prevent it from returning to as it was in 1997, he said.
A recent quarterly survey by Bangkok Poll showed 81.8 per cent of economists pegged economic growth at 3 per cent this year, driven by the recovering global economy.
The improvement in the world economy would help Thai exports expand 9.6 per cent this year. However, exporters would have to closely monitor risks from foreign exchange rates. The economists expect the baht would move in a range of Bt32-Bt32.99 against the dollar. World oil prices are expected to vary from US$80-$89 per barrel.
The economists expressed their concerns over negative factors like the world's economic vulnerability, domestic politic turmoil, red-shirt protest rallies and pollution problems around Rayong's Map Ta Phut Industrial Estate.
Most of the respondents said they believed global economic growth would be greater than last year.
Sixty-six per cent said the policy interest rate would stay within a range of 1.25-2 per cent.
Almost 64 per cent did not agree with the government's weakening-baht policy, suggesting the currency be stabilised instead. However, 28 per cent agreed with the policy but felt it should be only for the short term.
They said the government's best measures over the past year were cutting the cost of living - such as utility bills and bus fares - while the worst measures were the leasing of 4,000 natural-gas-for-vehicles buses, loan-shark resolution and Bt2,000 cheques for low-income earners.
Phatra Securities managing director Supavud Saicheua said he did not think the Bank of Thailand (BOT) would raise its policy interest rate.
Gross domestic product (GDP) growth of 3.8 per cent for this year was in the middle range, driven by exports. Investment this year should not be an engine of growth, because it will account for only 20 per cent of GDP, down from 40 per cent last year.
As for a possible rate hike, BOT Deputy Governor Atchana Waiquamdee said the priority of the Monetary Policy Committee (MPC) was to weigh the pros and cons of a prolonged easy-money policy.
"The MPC is not focusing on any particular factor, but rather weighing whether the relaxed period since April 8, 2009, whereby the policy rate has been pulled down to 1.25 per cent, will pose an inflation risk. However, ending the relaxation may pose risks to the economy, which has not yet fully recovered. Thus, if asked what the MPC is focusing on, it's economic stability," she said.
