Growth expected to hit 5% next year on strong exports

Bangkok Post (28 November 2007)

Economic growth should reach 4.5% this year and accelerate to 5% in 2008, according to a new forecast by the Finance Ministry. The latest forecast is an increase from the 4% forecast for 2007 made in August. But inflation is now projected to jump to 4% in 2008 from 2.2% this year, due largely to the rise in global oil prices.

Pannee Stawarodom, the director-general of the Fiscal Policy Office, said the economy this year would be driven by strong exports and accelerated fiscal spending. Growth in 2008 was projected to increase from this year thanks to a recovery in domestic consumption and continued expansion in exports, she said.

The new inflation forecast, however, raises the chance that the central bank's Monetary Policy Committee would keep interest rates unchanged at its next meeting on Dec 4. The MPC in October kept its one-day repurchase rate unchanged at 3.25%, citing a slight increase in the risk of greater inflation.

Mrs Pannee said the Finance Ministry's economic projections were based on a 2008 oil price forecast of $83 per barrel for Dubai crude, compared with an average price of $67.80 per barrel this year.

One-month futures contracts for Dubai oil in Singapore have been quoted this week at $90-91 per barrel, as global supplies remain tight.

''Domestic economic stability faces the risk of rising inflation,'' Mrs Pannee said.
While the new 2007 growth estimate of 4.5% is higher than earlier forecasts, growth still remains below the 5% rate posted in 2006, due to sluggish investment and domestic consumption. Investment this year is projected to rise 1.5% from last year, with consumption expanding by a modest 0.2%.

Exports are projected to expand 6.4% in volume terms this year, compared with a 3.5% increase in imports. Government spending this year is also 9.2% higher than last year, with state investment up 2.9% year-on-year. The current account, meanwhile, is projected to post a surplus of 5% of GDP for 2007, thanks primarily to record-high exports.

For 2008, private investment is projected to increase 5.3% from this year, with domestic demand forecast to grow 2.5%. Public consumption, however, is expected to fall 4.5% in 2008 from this year, although public investment is likely to grow 4.5%.Export growth is projected to moderate in 2008 from this year, although the current account is forecast to remain in surplus at 3.3% of GDP.

In any case, Kanit Sangsubhan, the director of the FPO's Policy Research Institute, played down fears of rising interest rates due to inflationary pressures. A supply shock from high oil prices was driving inflation, not greater demand, he said.

Meanwhile, Mrs Pannee said the Finance Ministry was revising its fiscal policy projections for the next several years. The current five-year framework, set in 2004, calls for public debt to be maintained at no more than 50% of gross domestic product.