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Published on October 20, 2007

That economic projection already takes into account domestic price adjustments in goods and services, transport fares, liquefied petroleum gas, consumer goods and wages, as well as pressure from additional price increases.

The Bank of Thailand (BOT) yesterday announced its economic-growth projection this year of 4.3-4.8 per cent, compared with its previous forecast of 4-5 percent. Core inflation was slightly revised to 0.8-1.3 percent, from 0.8-1.5 percent before, while headline inflation was projected to be 1.8-2.3 percent, compared with 1.5-2.5 percent.

Assistant Governor Suchada Kirakul said if the crude-oil price in the Dubai market escalated in the fourth quarter to the worst-case assumption of $80 a barrel - or $100 a barrel for WTI - the economy would continue to expand 4.3 percent. She said core and headline inflation would also remain in the forecast range.

In the base-case scenario, the economy would grow 4.4 percent with 1.04-percent core inflation and 2.14-percent headline inflation if the crude oil price is $75 a barrel in the fourth quarter. Growth will be 4.5 percent if the oil price stands at $68 a barrel.

She said the soaring oil price was likely to be temporary, because oil demand had slowed despite the upside geopolitical risk on remaining supply. So far this month, the Dubai oil price has jumped 30.82 percent from last October to $74.02 per barrel. However, the price is up only 2.64 per cent for the year to date.

Moreover, oil-price adjustments will occur automatically. The rising price of oil will dampen the world's economy, resulting in the oil price eventually declining, she said.

"We must keep an eye on developments, because the oil price jumped rapidly - by $5 or $6 just from October 10-18 - but the price can go up and down," said Suchada.

The BOT predicts the Dubai oil price will fall to about $71 or $72 next year, thanks to new supply and decreasing demand. This would allow the economy to expand in the range of 4.5-6 percent, except in the worst-case scenario, in which the oil price would skyrocket to $82.30 a barrel.

The assistant governor insisted the policy interest rate had encouraged economic growth, because inflation over the next eight quarters remained on target and was not an urgent factor to be addressed by the central bank.

The US sub-prime mortgage-loan problem, lower-than-expected government spending, gloomy confidence among businesses and consumers and the appreciation of regional currencies have all posed risks to economic growth and inflation, too.

Suchada said third-quarter economic growth was likely to be 4.4-4.5 percent, because economic indicators in July and August had shown a more satisfactory picture than in the second quarter.

Exports continue to be the strongest economic engine driving economic growth this year with expected growth of 13-15 per cent, compared with 12-15 per cent in previous forecasts. The BOT expects the economies of trading partners to be unchanged at 4.6 percent this year.

"Net exports have increasingly contributed to the economy. We earlier forecast that it would slow in the second half of the year, but exports grew 12 percent in July and August, the upper range of the second-half forecast of 6-12 percent," she said.

However, total consumption has been revised downwards to 2.5-3.5 percent, from 3.5-4.5 percent before, and total investment is forecasted to be 0.5-1.5 percent, down from 1.5-2.5 percent.

The economic forecast was made on assumptions that the US Federal Reserve will cut its Fed Fund rate to 4.5 percent and regional currencies will be decreasingly stronger compared with the previous forecast.

Anoma Srisukkasem

 The Nation