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Thailand Raises Growth Forecast as Rising Exports Counter Political Unrest

Thailand’s Finance Ministry raised its 2010 economic growth forecast for the second time in three months as soaring exports overshadowed the impact from the nation’s recent deadly political unrest.

Gross domestic product may expand 5 percent to 6 percent in 2010, with a mid-point forecast of 5.5 percent, Ekniti Nitithanprapas, the ministry’s spokesman, said at a news conference in Bangkok today. The ministry in March raised the estimate to as much as 5 percent from a December projection of as much as 4 percent.

Southeast Asia’s largest economy after Indonesia expanded 12 percent in the first quarter from a year earlier as exports rebounded from last year’s global slump. Central bank Governor Tarisa Watanagase, who has refrained from raising borrowing costs this year as anti-government protests threatened growth, said last week there is less need for “abnormally low” interest rates as the economy has improved.

“The Bank of Thailand is likely to normalize the benchmark rate in the fourth quarter of this year, but not shift to a tightening,” said Usara Wilaipich, an economist at Standard Chartered Plc in Bangkok. Domestic demand and export growth may slow in the second half, as cooling economies in China and Europe will probably hurt Thai exports, she said.

Standard Chartered expects Thailand’s economy to expand 2.8 percent this year. In contrast, the finance ministry said its estimate is a “conservative” one that already assumes export growth may slow in the second half and takes into account the impact from the recent political unrest.

Export Forecast

Economic growth in the second quarter may slow to 5.6 percent, the finance ministry said today. The government raised its 2010 export growth forecast to 22.5 percent from the 18 percent predicted in March.

“We are still concerned about the impact of the debt crisis in Europe and the sustainability of the global recovery,” Ekniti said. “We are lucky that the export growth remained high while we have domestic problems, but we still need to reduce our reliance on exports in the long term.”

Prime Minister Abhisit Vejjajiva said June 18 Thailand’s $272 billion economy may expand 6 percent this year, the most since 2004, boosted by overseas orders and private spending. The country’s exports jumped 42.1 percent in May, the biggest gain in almost two years.

Political Violence

Rising shipments are helping support growth after the protests in April and May led to the country’s worst political violence in almost two decades, leaving 89 people dead and damaging buildings including the nation’s biggest shopping mall owned by Central Pattana Pcl.

“Exports are the key driver for our economy this year, in line with the global economic rebound,” Ekniti said. Overseas sales are helping “reduce the impact from lower tourist arrivals and weak local consumption caused by the political unrest.”

The Bank of Thailand said this month the impact of unrest was limited and the economic momentum should continue. Policy makers on June 2 kept its benchmark interest rate at 1.25 percent, the lowest level since July 2004. The next monetary policy meeting is on July 14.

The central bank may raise the interest rate by a quarter of a percentage point to 1.5 percent in the fourth quarter, Ekniti said. “If economic growth gains more momentum, the key rate may be raised again,” he said.

Inflation may average 3.5 percent this year, with core inflation forecast at 1.3 percent, as “inflation pressure remains benign,” Ekniti said. The baht may trade in a range of 31.5 to 33.5 per dollar this year, the ministry predicts.

To contact the reporter on this story: Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net

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