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New crisis seen as unlikely, economists say, but caution urged

Economy March 21, 2017 01:00


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ECONOMISTS have urged caution while watching for a continuing recovery, recalling the adage about the frog that died by failing to notice that the pot of water it was sitting in was slowly coming to a boil.

“It is almost a consensus among economists that the economy has been recovering,” Sakon Varanyuwattana, dean of Thammasat University’s faculty of economics, said yesterday at a forum called “Thai Economy 2017: Som Tum Crisis?”

Four engines – consumption, private investment, exports and public investment – contribute to economic growth, he said.

However, he warned that the government should not increase tax rates at this time because that would dampen the recovery. He added that taxes should be raised in order to finance budget deficits, but this is not the right time.

Another key event to watch is the meeting between Chinese President Xi Jinping and his US counterpart Donald Trump next month. 

“Should they start a trade war, it will have an impact on Thailand’s exports,” said Suthikorn Kingkaew, director of Thammasat Business School. He added that currently Thailand’s exports of raw materials to China were worth about Bt77 billion annually.

However, he expects the two world leaders to compromise, since a trade war would hit both their economies badly. He said he did not think Trump would impose a 45-per-cent tariff rate on Chinese goods as he threatened earlier.

Suthikorn also raised concerns over the competitiveness of Thai manufacturing such as textiles, automobiles and hard-disk drives, which show signs of production cuts. Many industries might to out of business partly because of the sluggish global economy and changing technologies, he said.

“We’re like a frog in a pan that isn’t aware of the slowly increasing water temperature, and we could be killed,” he warned. 

Meanwhile Witawat Rungruang-phon, professor of marketing at Thammasat Business School, is worried about flat incomes of labourers and farmers.

Because of the previous export slump, manufacturers cut overtime, resulting in lower incomes for workers. Meanwhile farmers’ incomes were hit by drought and depressed prices of their products.

“Now we have to look out for whether a new round of drought will be severe,” Witawat said.

Prices of farm products have recovered slowly, so farmers are still cautious on spending, while labour income still depends largely on how exports will perform this year.

The government targets export growth of 5 per cent this year but private-sector organisations are less optimistic, predicting a growth rate of 1 or 2 per cent year on year.

The National Economic and Social Development Board projects that gross domestic product will expand by 3.5 per cent, slower that the overall growth rate in the Asean region. 

Witawat suggested that private firms need to move to Asean countries, such as Cambodia, Laos and Vietnam where growth rates remain high, at 6-8 per cent.

Economists do not think Thailand will face an economic crisis in the foreseeable future but it is likely to move along the path of slower growth.

Meanwhile, Asian currencies rose against the US dollar yesterday, with the greenback suffering fresh selling pressure after the Federal Reserve hinted at a slower-than-expected schedule of interest-rate increases this year.

The baht opened at 34.71 per dollar yesterday morning, up 0.40 per cent from 34.85 at the end of last week, and its strongest level in five months. 

The Malaysian ringgit was trading at 4.4330/4360 early yesterday against the greenback from Friday’s close of 4.4340/4370.

The Indonesian rupiah was trading at 13,324.938 per dollar, up 0.17 per cent from 13,348.428 on Friday.

The Singapore dollar was trading at 1.398, up 0.28 per cent from 1.40201 on Friday. 

The Philippine peso was trading at 50.133, up 0.14 per cent from 50.2079 per US dollar on Friday. 

Bank of Ayudhya forecasts that the baht will strengthen to 34.55-34.85 this week. Investors sold US dollars after the Fed decided to increase its policy interest rate last week.

However, the Bank of Thailand said the baht’s current strength was short-term.

The baht closed yesterday at 34.71 against the greenback.