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Political gridlock threatens economy

Confidence and growth at risk, say observers

Should the political situation descend to the worst-case scenario, business confidence and growth will suffer, some market observers warned yesterday.

"The latest gathering by the People's Alliance for Democracy (PAD) to oppose government attempts to amend the Constitution supports our view that the political situation is shifting towards a worst-case scenario," said Citigroup Thailand's Investment Daily report yesterday.

The gridlock faced in the months prior to the September 2006 coup is again clearly visible, it said.

Fiscal Policy Office director-general Pannee Sathavarodom also expressed concern about fallout from the political situation at a time when the local economy appears to be enjoying a strong growth momentum.

Based on value-added tax (VAT) collection by the Revenue Department, the economy showed it was experiencing a pick-up in both consumption and investment.

Pannee said that last month VAT collection grew 12.2 per cent. Investment, particularly in real estate and machinery, also showed expansion, while taxes collected from business investment grew 44.6 per cent.

"We're quite concerned about inflationary pressures, the political situation and the higher oil prices," said Pannee.

The University of the Thai Chamber of Commerce predicts the local economy could grow at less than 4.5 per cent if the worst-case scenario is realised.

Thanawat Polvichai, director of the university's Economic and Business Forecasting Centre, said: "Growth this quarter and next could be worse if political instability persists. We believe there will be a recovery in the fourth quarter if the government approves the next fiscal budget and implements mega-projects," he said.

The university maintains its growth projection of 5.1 per cent and its range of economic growth at 4.5-5.5 per cent.

The university study showed the Central region enjoying the highest economic growth of 7.7 per cent in the first quarter, thanks to rising prices for rice and other cash crops, along with industrial investments, said lecturer Wachira Khuntaweetep.

Growth in the gross domestic product expanded 5.6 per cent in Bangkok and the surrounding provinces, 4.8 per cent in the Northeast, 4.7 per cent in the South and 4.4 per cent in the North.

Thanawat also predicted average growth could ease to 5 per cent this quarter in terms of lower consumption, fewer investments and a reduced employment rate.

"Despite rising crop prices, farmers must cope with skyrocketing oil prices and raw materials. Exporters still worry about the baht's appreciation. If possible, the government should keep the baht's foreign-exchange rate at 32 to the US dollar," said Thanawat.

The university is also cooperating with the Comptroller-General's Department to estimate the country's grain situation. It predicts the price of rice will drop slightly at the end of the year, because more supply will enter the global market.

For Thailand, the price level for crops like rice, tapioca, corn and rubber continues to jump.

However, farmers have not gained as many benefits from the rising price as traders have, because of their high costs for fertiliser and oil.



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