US trouble could hinder Thai growth

Bangkok Post (30 November 2007)

Sub-prime mortgage problems to persist Economic growth in 2008 could fall below the 5% projected earlier by the Finance Ministry if the US sub-prime mortgage crisis deteriorates further, according to Kanit Saengsubhan, director of the Fiscal Policy Research Institute. The ministry recently revised its projections for US economic growth next year down sharply to slightly over 1% from previous forecasts of 3% due to the sub-prime mortgage crisis.

''But there is new speculation arising after a meeting among US top financiers recently that half of the total $800 billion in sub-prime mortgages could turn sour, leading US banks to write off $150 billion in loans over the next two years,'' Dr Kanit said yesterday at a seminar held by Thammasat University.

''It is not certain yet how severe the US sub-prime mortgage crisis will be. In a moderate case, economic growth in the next year could stand at 4.5%. If the situation becomes more severe, chances are that growth will be less than 4.5%.''

The ministry expects headline inflation in Thailand to jump 4% in 2008, compared with 3% earlier forecast. Headline inflation is expected to be 2.2% in 2007 because retail oil prices rose slightly. The ministry used a Dubai oil price assumption of $83 a barrel for 2008 and $68 for 2007.

Dr Kanit noted that Dubai crude prices had decreased by $6 per barrel per day during the past few days from a high of $97 per barrel.

The ministry expects domestic consumption to grow 2.5% in 2008, up from 1.5% in 2007. Private investment would record almost no growth in 2007, and is likely to remain weak in 2008 because of uncertainty on sub-prime problems and high oil prices, he said.

Dr Kanit added that measures to alleviate the impact of more expensive oil prices could involve the 1.30 baht-per-litre Oil Fund levy on diesel and the 3.50 baht-per-litre excise tax on diesel.
Vijit Supinit, the former chairman of the Stock Exchange of Thailand, said the new government's economic policy should focus on stimulating economic growth through large-scale infrastructure investment and spending programmes targeting rural households.

The economy during the past two years had grown below its 5-7% potential because of sluggish investment and domestic consumption, he said.

''I would like to see the government jump-start the economy,'' Mr Vijit said. ''There has been no new large-scale investment projects since 1997. It should be implemented quickly along with populist policies to inject cash into the economy to help support investment.''

Mr Vijit said the government should set an annual budget deficit of 2-3% of gross domestic product to stimulate the economy.

The Bank of Thailand should ease monetary policy and increase bank lending to support investment, he added.

''Interest rates, at least, should not increase,'' he said.