Prasarn frets over investment effect

The Thai economy can withstand the prolonged domestic political uncertainties in the short run thanks to the country's strong fundamentals, but it will hurt the investment outlook over the medium term, says the Bank of Thailand governor.

Central bank chief Prasarn Trairatvorakul said Thailand’s sound fundamentals can help cushion against the political impasse given no crisis is happening, but admitted personal income and the employment rate could decline as a result.

"We do not expect an economic crisis to occur in the near term since there is stability in the foreign exchange rate and there has been no signs of concern among financial institutions, the current account or financial accounts," he said.

The central bank predicted improved export growth this year, but a dip in consumption and investment is likely to lead it to cut a previous 4.5% export growth forecast, said Mr Prasarn.

"We have to accept Thai economic growth this year will be quite low, but growth is not expected to contract or face a crisis," he said.

The central bank’s Monetary Policy Committee is expected to cut its 2.7% growth forecast for 2014 at its next meeting in June. The outlook is a major factor used in considering the policy rate at MPC meeting.

Swift economic recovery could happen next year if the political situation is resolved soon, said Mr Prasarn, adding a prolonged impasse could tame any recovery.

Mr Prasarn agreed the newly appointed Board of Investment committee can enhance investor confidence with application approvals, but warned it will take some time for the projects to come to fruition.

The medium-term economic outlook is deemed the main concern as diminishing investments could weaken the economic fundamentals, he said.

The central bank’s monetary policy is considerably relaxed and there is excessive liquidity in the financial system, he said.

Financial markets remain confident in Thailand’s macroeconomic condition, with the foreign exchange rate stable after the Constitutional Court’s ruling, said Mr Prasarn.

The charter court ruled to dismiss caretaker prime minister Yingluck Shinawatra and nine other cabinet members from office for the unlawful removal of Thawil Pliensri as secretary-general of the National Security Council in 2011.

Though a depreciating baht helps exporters, foreign investors could lose confidence about their investments in industrial production and stock investment if their profits are earned in baht, he added.

Kasikorn Research Center said the political turmoil significantly affected economic activities in the first quarter this year compared with the last quarter of 2013. It projected a contraction of 1.8% quarter-on-quarter.

For instance, imported consumer products fell 8.3% in the first quarter year-on-year compared with a slight contraction of 0.9% in the fourth quarter last year, indicating consumers to cut down on inessential expenses. Crop prices also dipped during the quarter, especially rice and rubber, which hurt farmers and related consumers' purchasing power.

As a result, the research centre anticipated GDP growth below 1% in the first half, in line with slowing momentum of the Thai economy since the political protests started late last year.

A technical recession is possible in the first half, said K-Research, meaning a contraction in GDP growth for two quarters in a row.

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