Fiscal Policy Office director-general Naris Chaiyasoot said yesterday that the economy is expected to slow down even further next year, but "confidence and public spending will rescue the economy".

"Fiscal measures should be used as key policies to boost growth next year," he said, while predicting that economic growth in 2007 could be as low as 3.5 per cent.

Gross domestic product (GDP) will grow by 4.5 per cent this year, in line with the Fiscal Policy Office's earlier projection of 4 to 5 per cent, he said, but this will decelerate to somewhere between 3.5 and 4.5 per cent next year, largely due to a slowdown in the world economy.

Economic growth among 11 of Thailand's trading partners is expected to slow from this year's higher-than-expected average level of 4.1 per cent to about 3.3 to 3.9 per cent next year, and this will result in lower export growth for Thailand. The country's export growth is expected to fall from this year's level of 8.8 per cent to between 5.9 and 6.9 per cent.

Spending by central and local governments and state enterprises will cushion the lower growth, Naris said. The Finance Ministry and related agencies, including the Budget Bureau, the National Economic and Social Development Board and the central bank, are currently considering whether a new government should run a fiscal deficit in the year beginning on October 1.

The ministry has revised downwards its projection of government income in the next fiscal year, from a previous estimate of Bt1.476 trillion to Bt1.4 trillion.

Ministry spokesman Somchai Sujjapongse said a budget deficit of no more than 2.5 per cent of GDP is "appropriate".

However, caretaker Finance Minister Thanong Bidaya said that budget deficit of 2 per cent of the country's GDP is acceptable.

Naris said that apart from the fiscal deficit outlook, next year's current account deficit is expected to be about 1.8 per cent of GDP, following a surplus of 0.3 per cent this year. It is believed the current account deficit could expand to 1.9 per cent and 2.2 per cent in 2008 and 2009, respectively. This will largely be caused by higher crude oil prices and government investment in mass-transit and other infrastructure projects with high import content.

Naris said government investment is expected to expand by between 7.5 and 8.5 per cent next year, up from this year's 6.4 per cent. This will encourage private investment, which is expected to increase to 6.6 per cent, up from 4.4 per cent this year.

He warned, however, that government spending would not boost growth if political uncertainty continues to depress confidence.

Growth in private consumption is expected to slow down even further next year, to as little as 2.5 per cent, after this year's 3.5 per cent. Farmers' incomes will also slow down because of expected lower prices for farm products, Naris said.

However, lower growth is not expected to have much impact on unemployment. The present rate of unemployment is only 1.1 per cent.

Economic growth is expected to return to higher levels, of between 5 and 6 per cent, in 2008 and 2009, and that will lessen the impact of lower growth in 2007, Naris said.

Meanwhile, Bank of Thailand deputy governor Bandid Nijathaworn said Thailand's level of public debt can tolerate a budget deficit in 2007.

However, he warned that the size of the deficit should not create a fiscal risk and the government's spending should concentrate on productive sectors rather than on consumption.

The central bank's assistant governor Atchana Waiquamdee said a budget deficit of up to 3 per cent of GDP would be economically acceptable.

Anoma Srisukkasem,

Wichit Chaitrong

The Nation