IMF upgrades Thai GDP forecast to 7.5%

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IMF upgrades Thai GDP forecast to 7.5% 
Bangkok Post: 17 Jul 2010
IMF upgrades GDP forecast to 7.5%
'Resilient economy' spurs brighter outlook

The Thai economy has been "very resilient" in the face of domestic and external pressures and should show 7.5% growth this year, says the International Monetary Fund.

Joshua Felman, assistant director for the IMF's Asia and Pacific Department, said the fund raised its growth forecast for Thailand from 7% following recent consultations with the public and private sectors.

"The Thai economy continues to surprise people with its strength despite the political difficulties in April and May and the severe contraction in the global economy last year," he said at a briefing in Bangkok yesterday.

That forecast is significantly more optimistic than others. The Fiscal Policy Office late last month projected economic growth of 5% to 6% for the year, with 5.5% as a base. The World Bank last month raised its own forecast to 6.1%, citing the benefits of strong export growth.

The IMF agreed economic growth would be underpinned by a strong rebound in exports thanks to the improvement in the global economy. Investment has also rebounded, particularly in the automobile and electronics sectors.

Mr Felman said the economic reforms adopted over the past decade had helped strengthen the country's economic fundamentals.

Thai banks remain broadly healthy and little affected by the global crisis, while leveraging among Thai companies remains low.

The public sector had also maintained a strong balance sheet even with the increase in fiscal stimulus spending over the past several years, said Mr Felman.

A strong policy response to the 2008-09 crisis also served the economy well, with Mr Felman noting that the Bank of Thailand had eased monetary policy with the "largest interest rate reductions in the region" to counter the global downturn.

Fiscal stimulus programmes, focused on supporting domestic demand and easing the social impact of the downturn, had also been "most fruitful" while remaining prudent.

But the IMF cautioned that the main challenge would be how to sustain growth in the medium term. Mr Felman listed additional infrastructure investment as one urgent need.

"It is very clear that in recent years, investment in infrastructure in Thailand has not been as much as others in the region," he said.

But raising public infrastructure investment will also put greater challenges on fiscal policymakers.

"Either the government reallocates budget resources or increases revenues," said Mr Felman.

"To date, the Thai record (in fiscal policy) has been prudent. We expect this to continue."

The IMF also raised concern about the relatively small size of the Thai financial sector and capital market constraining economic growth.

Mr Felman said the fund welcomed moves by the central bank and other regulatory agencies to strengthen the capital market.

"If these [constraints] can be addressed, it should help lead to 4% to 5% growth in the medium term," he said. "We are optimistic about Thailand's future."

The IMF projects Thai economic growth of 4.5% for next year, declining in part due to base effects.

Global economic growth, meanwhile, is projected at 4.5% both this year and next, although uncertainties in the advanced economies represent a risk.

"We expect reasonably good [global economic] growth but with a multi-speed recovery and more downside risk," said Mr Felman.

Emerging economies such as China, Brazil, India and Indonesia are growing rapidly even as the United States and Europe remained constrained by lingering problems.

He said the disparity in growth could result in volatile capital inflows to emerging markets while at the same time leading to periods of risk aversion.

"It's still uncertain how it will play out in the medium term," he said.

http://www.bangkokpost.com/business/economics/186507/imf-upgrades-gdp-forecast-to-7-5