The Finance Ministry will likely lower its 2006 economic growth forecast, as the delay in forming a government was expected to disrupt passage of the fiscal 2007 budget and its disbursement.

"I have a new figure but can't reveal it now," Naris Chaiyasoot, director-general of the Fiscal Policy Office, said yesterday.

He believes that it would not be much lower than the previous projection.

The ministry has been holding out for growth of 4.5-5.5 per cent, but the Bank of Thailand revised its target down by 25 basis points to 4.5-5.5 per cent, following the dissolution of the Thaksin government and concerns that the political vacuum would choke government investment.

On Monday, the Election Commission set October 22 as the new election date. The Stock Exchange of Thailand Index has declined sharply since then, as investors fear a slowdown in government spending that, along with soaring oil prices and interest rates, could act to drag down the economy.

Naris confirmed that scenario, saying implementation of the 2007 budget - which would need to be approved by Parliament by next month for the start of the fiscal year in October - would be set back longer than expected.

However, the government could accelerate investment projects later on. For example, the government could invite companies to bid on key contracts before the actual monies are authorised.

Local corporations are also worried about the baht's appreciation against the US dollar, which could weaken the country's export competitiveness. But Bank of Thailand Governor Pridiyathorn Devakula said the issue is less worrisome as the strengthening of the Thai unit is in line with other currencies.

"There is a re-alignment of currency appreciation. From the beginning of

this year, the baht has appreciated 7.4

per cent, down from the peak of 9 per

cent. This is against 8.17 per cent for

the euro, 9.28 per cent for the British pound, as well as 7 per cent for the

Korean won and Japanese yen," he said.

The baht closed yesterday at Bt38.16-Bt38.19.

Stocks ended lower yesterday for the third straight day as political uncertainties and regional slides continued to weigh on sentiment, while the end of the earnings season left players without strong buying incentives, analysts said.

The SET Index closed down 4.10 points, or 0.5 per cent, at 761.87. Volume was moderate at Bt19.26 billion, comparable with Monday's trading value of Bt19.24 billion.

Phatra Securities said in a research report that the widely expected slowdown in economic growth could provide a downside to government revenue. This would leave less room for the government to spend extra money to stimulate the economy during the second half of the year.

In April, total government net revenue was Bt115 billion, up 13.5 per cent year on year but only 1.7 per cent above target. Tax receipts, which account for 90 per cent of government revenue, is falling short of target for the second straight month during the 2006 fiscal year.

During the first seven months, net revenue rose 5.9 per cent year on year but only 1.5 per cent above target. In the same period, value added tax collections rose 12 per cent year on year versus 19 per cent growth in the same period in the previous fiscal year.

Phatra Securities sees the under-performing VAT raising some concerns about the fiscal position going forward. This is because the VAT is the largest contributor to government revenue. It accounts for 27 per cent of tax revenue. Falling consumer confidence could partly dampen VAT collection.

"The second [largest] contributor is corporate income tax which accounts for 22 per cent of tax revenue. The government has high hopes that tax collections in May will improve its fiscal position which was in a huge cash deficit during the first seven months. In conclusion, the growth rate of government revenue is decelerating, possibly to be in the range of 8-10 per cent versus 12 per cent last year," Phatra said.

Asia Plus Securities Plc expects the stock market to remain bearish in the medium term due to the longer-than-expected political vacuum.

"The new government could be formed in November, which is past the beginning of the 2007 fiscal year. This could pose problems in budget disbursements and the new government should be ready to work early next year. This can't produce good impacts on the economy and the stock market in the medium term."

Soaring oil prices and high interest rates have already battered the economy. Several companies have shown lower profits in the first quarter, and the association of stock analysts is prepared to cut back on its estimate of listed companies' earnings growth.

In the first quarter of this year, 316 listed companies performed as expected with a combined net profit of Bt120 billion, up 9 per cent year on year but up 27 per cent on quarter.

DBS Group Research noted that the delayed government formation would put off government investment or large-scale projects.

"The projects could be reviewed early next year, but we are unsure if the new government's focus would be on political reforms or economic development."

It recommended investors to avoid stocks that rely on government spending, such as construction companies.

Stock Exchange of Thailand president Kittiratt Na-Ranong downplayed the political influence on the market's movements. He said investors are rather more sensitive about inflation rather than the political vacuum.

"The market is not in a worrisome state. There are more worrying factors such as inflation, driven by fuel oil prices. This is an influential factor that should be addressed. Politically, there is no impact, but the delay [in forming the government] would affect the government's spending." he said.

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