Thai Growth May Quicken as Yingluck Spending Counters Europe

Bloomberg  Aug 17, 2012 10:45 AM GMT+0700

Thailand’s growth probably accelerated last quarter as Prime Minister Yingluck Shinawatra boosted government stimulus, spurring domestic demand as the weakening global economy clouded the outlook for exports.

Gross domestic product rose 3.1 percent in the three months through June from a year earlier, which would be the fastest pace of expansion since last year’s floods, according to a Bloomberg News survey of 16 economists. The economy grew 2 percent from the previous quarter, a separate survey showed. The data is scheduled to be released on Aug. 20.

Southeast Asian nations from Indonesia to Malaysia have cut interest rates or increased public spending to shore up local demand as Europe’s debt crisis and a faltering U.S. recovery curb exports. Yingluck, who marked her first year in office this month, has shelved politically contentious legislation to focus more on the economy as Thailand confronts overseas risks after recovering from the worst floods in almost 70 years in 2011.

“The government’s fiscal measures have boosted growth, which in turn feeds into domestic demand -- consumption and private investment,” said Leslie Tang, an economist in Singapore at OSK-DMG. “The biggest risks ahead are external headwinds and a slow disbursement of the fiscal measures that could slow the recovery and rebuilding of the Thai economy.”

The baht was little changed against the dollar as of 10:41 a.m. in Bangkok, having lost more than 5 percent over the past 12 months. The benchmark Stock Exchange of Thailand Index gained 0.2 percent.

Supporting Growth

The Bank of Thailand kept its policy rate at 3 percent for a fourth meeting last month, and cut its expansion forecast for the year to 5.7 percent from 6 percent. It reduced its export growth estimate to 7 percent from 8.3 percent and said inflation will be 2.9 percent from an earlier prediction of 3.3 percent.

There is room to adjust monetary policy to support economic growth if needed, and the central bank is ready to do more, it said at the time. Two members of the seven-member monetary policy committee voted for a 25 basis-point cut.

Finance Minister Kittiratt Na-Ranong said last week he’d like to see the baht weaken slightly to help exporters and the benchmark rate should be 2.5 percent as inflation is manageable.

“I expect BoT to remain on hold should growth hold up and inflation remain benign,” Tang said. “But I think the central bank is under pressure from the government to give the economy that extra boost via monetary loosening.”

Members of the central bank’s board and monetary policy committee met yesterday to resolve differences after the Bank of Thailand’s new Chairman Virabongsa Ramangkura said last week inflation targeting is inappropriate and monetary policy shouldn’t be used to deal with price pressures. The central bank has used targets for price gains since 2000.

Effective Policy

Governor Prasarn Trairatvorakul said today inflation targeting remains an effective stance for Thailand, and the central bank also looks at economic growth and foreign exchange when determining monetary policy.

“As of now, there is no better option than inflation targeting,” Prasarn told reporters, even as some board members have different views and question its effectiveness.

Thai exports fell 4.2 percent in June from a year earlier, the fourth decline in six months. In the first half of the year, electronics shipments dropped 2 percent, while auto products surged 17 percent, the Commerce Ministry said last month.

Toyota Motor Corp. has had record local sales this year as supply constraints eased and the Thai government offered as much as 100,000 baht ($3,170) in tax savings for first-time buyers.

Record Sales

Thai auto sales rose 76 percent in June, while production jumped 34 percent to 205,600 units, the highest level in 50 years, according to the Federation of Thai Industries. Output may rise 51 percent in 2012 to a record 2.2 million units, the Thai Automotive Club, a trade group, said in June.

Other exporters remain wary. Delta Electronics (Thailand) Pcl has cut its investment for the year by 40 percent and the chief executive officer of Hana Microelectronics Pcl, which makes parts for Apple Inc.’s iPhone, said any increase in sales will be an “achievement.”

“A number of our customers are becoming cautious due to the concerns over Europe, the U.S. and, of course, China,” Richard Han said. “We are not as optimistic as we were 3-4 months ago.”

The government has extended tax exemptions for flood-hit companies to end-2012 after they expired in June. The ruling party last month delayed consideration of constitutional amendments and bills that may provide amnesty for former prime minister Thaksin Shinawatra, as it focuses on the economy.

The worst of the impact of the European crisis on Thailand “may have not started or have just started,” Deputy Central Bank Governor Suchada Kirakul said in an interview last week. “Up to now we have seen the impact on exports. If it prolongs, it could pass through to production, income and expenditure and the domestic side. That will be the real impact.”

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