The Finance Ministry announced yesterday that economic expansion had slowed in February just as the political turmoil got under way, adding to a series of factors affecting consumption.

"The economy in February was largely driven by overseas demand, as exports which account for as much as 60 per cent of GDP [gross domestic product] continue to rise. But domestic demand has slowed down," said Naris Chaiyasoot, director of the Fiscal Policy Office.

Naris said people usually tended to spend less in January and February. But he acknowledged that the political conflict had affected domestic investments, especially the government's mega-projects.

"Normally there's a domestic economic slowdown when there's a change in the government. But I believe that the new government will look after investment," he said.

Agriculture is still doing well, and employment continues to grow in the sector.

Finance Minister Somkid Jatusripitak hinted that the inflation rate in March would slow from January and February because goods prices were not allowed to rise. Moreover, oil prices have been stable. In February, inflation grew 5.6 per cent from February 2005, compared to 5.9 per cent the previous month.

Finance Ministry spokesman Somchai Sajjapong said the ministry expected domestic consumption to rise again in April during the long Songkran holiday.

Nonetheless, exports may decline slightly because there are several holidays during the month.

The Finance Ministry will monitor the economy and assess it again after the general election on Sunday.

Last year, Thailand was among the slowest-growing economies in Asia, with 4.5-per-cent expansion.

Despite the political turmoil, the Bank of Thailand has maintained its 2006 growth target of 4.75-5.75 per cent.

Bank of Thailand Governor MR Pridiyathorn Devakula said yesterday that if the political turmoil were settled soon, not in the next three to six months, economic growth would remain on track. He said the falling Consumer Confidence Index and Business Sentiment Index earlier this year did not mean there would be an immediate impact on growth.

The Consumer Confidence Index in February measured by Thai Chamber of Commerce fell to 85.1, which means it has been below 100 points for 20 consecutive months. Meanwhile, the Business Sentiment Index released by the central bank was at 45.2 in January, a contraction for the first time in the past four months. It came in at 45.9 in December.

Pridiyathorn insisted that the economy in February had continued to grow, as reflected in many indicators. Private consumption expanded about 4 per cent from the same period last year. Export value grew by 23 per cent in February, while import value rose 15 per cent.

However, he did not disclose February's private investment figures.

The Bank of Thailand is to release its monthly economic report for February today. In January, the Private Consumption Index rose by 0.7 per cent, compared with 2.2 per cent in December. The Private Investment Index was at 4.7 per cent, down from 5 per cent in December.

Pridiyathorn dismissed the more pessimistic economic figures for March as forecast by other organisations.

"Nobody knows the exact figures until the formal figures are released," he said.

In addition, he insisted that increasing interest rates would not hammer economic growth because the rates, despite the hikes, are still at a relatively low level.

The central bank is widely expected to raise the policy interest rate by another 0.25 percentage points to 4.75 per cent at its next meeting on April 10 in order to curb inflationary pressure and boost the real deposit interest rate into positive territory.

The US Federal Reserve on Tuesday raised the federal funds rate by 25 basis points to 4.75 per cent amid concerns about inflationary pressure. 

Anoma Srisukkasem

The Nation