Bankers foresee continued GDP growth despite politics, inflation

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Bankers foresee continued GDP growth despite politics, inflation
By Sucheera Pinijparakarn
The Nation 2011-06-16

Thailand's economy could expand throughout this year despite pressures from domestic political situations and inflation, Thai bankers said.

"The political troubles in the past did not hurt the Thai economy much because the business sector was able to drive growth," said Bangkok Bank executive chairman Kosit Panpiemras. "We believe that irrespective of which party forms the next government, the business sector can drive economic expansion and this year's gross domestic product can grow by 4 per cent."

Siam Commercial Bank president Kannikar Chalitaporn said there are prospects for continuous economic growth if the situation after the election is peaceful. External factors will not affect the Thai economy as much as internal factors. Therefore, GDP this year has a high chance of growing by 4-5 per cent or more, she said.

Even though higher interest rates affected operation costs, small and medium-sized enterprises are not worried as long as sales revenue continues to grow and they can access financing, she said.

Kosit said the domestic political situation after the election might affect the economy if the new government is unstable.

He is also concerned that the next government will focus more on populist schemes than on projects for developing the country. "If the government does this, the economy will be damaged in the long term."

In case the country gets a new government that does not get wide acceptance because of the political conflict, the country's tourism and investment could take a plunge like before, he said.

Apart from the politics, Thai operators should watch out for inflation, which could affect their operations, he said.

Inflation remains a factor affecting economic growth, said Porametee Vimolsiri, deputy secretary-general of the Office of the National Economic and Social Development Board. The NESDB estimates that inflation will not exceed 3.8 per cent this year and the policy interest rate will likely stay in a range of 3.25-3.50 per cent, subject to inflation.

The central bank has hiked the policy rate by 150 basis points since last July to 3 per cent, the highest since December 2008, at the last Monetary Policy Committee (MPC) meeting on June 1.

In the minutes of that meeting, the MPC stated that "inflation risk rose, as reflected in greater-than-expected price pressure in processed foods on the back of rising costs". Increases in the prices of processed foods may persist as certain producers have yet to adjust prices.

Robust domestic demand may lead to greater pass-through of production costs to overall prices and that presents a risk of inflation accelerating and persisting, the minutes said. Core inflation was estimated to breach the upper end of the target band in the next two quarters before returning within the band, it said.

The policy rate is expected to stay at 3-3.5 per cent by year-end, according to Kosit, suggesting that the Bank of Thailand will slow the pace of rate increases as the current rate can help control inflation, which is stabilising. It should allow the business sector time to adjust, he said.

Besides adjusting themselves to the upward interest rate trend, local small and medium enterprises (SMEs) find having a brand name the key to success while competing with rivals in the upcoming Asean Economic Community (AEC).

Virasak Sutanthavibul, Bangkok Bank executive vice president, said that brand names will help SMEs to meet the achievement in Asean market with food companies had the highest potential to capture the Asean market, especially in Indonesia.

The AEC "is important for Thai SMEs. We have attempted to promote the AEC to customers through seminars and overseas market surveys", he said.

The bank will lead a group of Thai SMEs to explore the Indonesian market next month. Virasak said Indonesia had a population of 200 million and low labour costs. The country has potential for Thai SMEs to set up factories to save operating costs and solve the problem of labour shortage.