The Finance Ministry yesterday revised downward its economic growth projection to 4-5 per cent this year, mainly due to political jitters, besides the soaring oil prices and high interest rates, which could plunge investment growth for the year to only 2 per cent.

The gross domestic product growth rate had been originally set at 4.5-5.5 per cent.

"The economic growth rate this year is expected to be about 4.5 per cent, the same as last year," Fiscal Policy Office director-general Naris Chaiyasoot said yesterday. Naris expressed concern about lower investment this year because of political uncertainty, volatile interest rates and high oil prices. Total investment is expected to go up only 2 per cent compared with 11.3 per cent last year.    

"Investment could come back if the government succeeds in creating confidence in the economy," said Naris. It is reported that caretaker Deputy Minister Somkid Jatusripitak has called for another meeting with the Board of Investment on June 5, following an earlier meeting on May 24. Additional incentives are expected to be announced to boost investment in key sectors including hotel and tourism-related sectors. 

Earlier, the Bank of Thailand (BOT) also revised downward its GDP forecast by half a per cent to 4.25-5.25 per cent, following the absence of a duly elected government, which may result in fewer public-investment projects. 

Naris said that if the government has a clear plan for mega-projects, this may boost private investment. A new government is likely to be formed by the end of the year as fresh elections are set to be held in mid-October.

The absence of a government with full authority would delay public-investment spending, particularly in mega-projects. Thailand's fiscal year starts in October, hence investments are expected to be delayed by at least three months.

For the current fiscal year, the government plans to spend Bt65 billion on mega-projects and has disbursed about Bt 11 billion so far. While investment plans by state enterprises are estimated at Bt279 billion, the Office says actual disbursement may be about 60 per cent.

The pattern of growth has changed from last year. This year growth will be boosted by exports while last year it was mainly through consumption and investment, said Naris.

Despite lower investment and a slowdown in consumption, growth-rate remains the same as last year because the economy of 11 trading partners has done better than expected, thus boosting exports, Naris explained. The combined GDP growth of the top trading partners has been revised upward to 3.8 per cent from 3.5 per cent forecast earlier. This is also an increase from their 3.5 per cent growth last year.

Export volume is expected to expand by 7.5 per cent, up from 4.4 per cent last year, while growth in the value of exports would fall slightly to 13.1 per cent from 15 per cent last year. Growth in volumes is high for electronics, computer parts, automobile and farm products. Meanwhile, growth in import volume would slide sharply to 1.6 per cent from 9.3 per cent last year.

The country would run a trade deficit of Bt2.6 billion but revenues from tourism are expected to contribute to a surplus in the current account, estimated to be US$3.9 billion or 2 per cent of GDP, up from a 2.1 per cent deficit last year.

The Office predicted that the US Fed funds rate would go up slightly to 5.25 per cent from the current rate of 5 per cent and it is believed that the BOT would also increase its policy rate. Currently the 14-day repurchase rate is at 4.75 per cent.

Inflation is expected to fall slightly to 4.2 per cent, from 4.5 per cent last year.

Consumption will decline to 4 per cent from 5.4 per cent last year. The fall in consumption has not been as much as had been estimated earlier, said Kanit Sangsubhan, director of the Fiscal Policy Research Institute, a research arm of the Fiscal Policy Office.

He said he was not worried about possibility of an asset-price crash in the United States. The market has buzzed with rumours of the risk for two years, but the actual crisis has not yet materialised, according to Kanit.

The baht strength has had little impact on exports, as the rate of the baht to the US dollar is expected to be Bt38.4 per US dollar, up from Bt40.3 last year or the Bt39.6 estimated earlier.               

Wichit Chaitrong

The Nation