World Bank raises GDP growth forecast to 3.7%

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World Bank raises GDP growth forecast to 3.7%
By Wichit Chaitrong
The Nation
2011-04-06

The World Bank is optimistic about Thailand's economic growth this year but warns that risks remain considerable.

The bank has revised upwards its growth forecast for gross domestic production this year to 3.7 per cent from 3.2 per cent previously, according to a report it released yesterday.

The Thai economy has broadened its base, with domestic consumption con?tributing more to growth than in the recent past and exports holding up well against the uncertain global outlook, said Frederico Gil Sander, the bank's country economist for Thailand and lead author of "Thailand Economic Monitor April 2011".

He expects the tourism industry to recover quickly from adverse effects of the flooding in the Southern provinces, as it has after previous natural disasters or political turmoil.

However, the impact on the agricultural sector is quite com?plicated and it is difficult to make an assessment, he acknowledged.

The higher growth forecast was based on the improved out?look for advanced economies and the continuation of favourable drivers of domestic demand, especially firm agri?cultural prices that help boost the income of rural consumers, he said.

"The pace of economic growth activity is gradually returning to pre-crisis levels." Domestic demand has been accelerated by higher farm income and low interest rates. This helped push up wages in agriculture, which in turn tends to lift wages of unskilled work?ers, he said.

Export demand picked up in the fourth quarter last year, also beneficial to the Thai economy.

However, the bank warned that risks to the outlook were substantial, including rising oil prices, follow-on impact of Europe's debt crisis, and the United States' fragile recovery.

The crude-oil price is cur?rently around US$110 a barrel and is unlikely to decline rap?idly, as political turmoil in Arab countries has not yet settled down, he noted.

However, Gil Sander said Thailand's changing export mix offered some resilience against higher oil prices and sluggish growth in advanced economies. The export basket has changed since 2007 towards products that experienced healthy price gains over the past year. These are automotive, petrochemical and agricultural products.

The bank does not agree with the government's policy of sub?sidising diesel prices and imposing price controls on sev?eral items. Gil Sander urged the government to help the poorest groups through cash transfers or creating public-sector jobs such as road cleaning, as the Egyptian government does.

He expects the central bank to continue to raise the policy interest rate to curb inflation. But fast rate hikes could be an incentive for large capital inflows that could disrupt exchange rates.

Gil Sander believes the cen?tral bank is very careful about its plan to raise the policy rate from the current low level to normal levels. "The pace of rate hikes may be moderate," he said.

He said that while a GDP growth rate of 3.7 per cent was not low, it was partly affected by the high base, since the country achieved high growth of 7.8 per cent last year.

However, he said that if Thailand wanted to pass from being a middle-income country to a high-income one, where per capita income is at least $12,000 (Bt362,500) annually, it needed to maintain an annu?al GDP growth rate of 6 per cent for 25 years.