Thai growth to be solid: UBS

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Thai growth to be solid: UBS

 WICHIT CHAITRONG
 THE NATION
 
BANGKOK: -- The political situations in China and Europe will contribute to volatility in global financial markets, but the Thai economy is expected to grow at a reasonable pace this year and next, said Paul Donovan, managing director and global economist at UBS Investment Research.
 
The Thai economy is expected to grow by 6 per cent this year as many businesses rebuild flood-damaged facilities and expand their operations, Donovan told a news conference yesterday.
 
Gross domestic product is expected to grow by 5.5 per cent next year because of a slight slowdown in investment from this year, he said.
 
Asked about the political situation in Thailand, Donovan said: "It is not much of a concern for us at this time."
 
However, he expressed concern about the political situation in Europe, where German Chancellor Angela Merkel is in essence trying to manage fiscal policies for other governments in the euro zone.
 
"It is a concern if government spending is cut too much and too quickly," he said.
 
The German leader is taking a tough position on fiscal discipline among members of the euro zone to shore up support at home ahead of a general election in October next year.
 
After the election she may have more room to compromise with other leaders, allowing them some room to spend money to boost their economies, Donovan said.
 
The uncertain political situation in Europe will cause high global financial volatility, as was seen immediately before and after the European leaders' summit last week, he said, pointing to large swings in global stock markets.
 
He was pessimistic about the outlook for the euro zone. "Generally speaking, the euro zone will basically have zero-per-cent growth over the next five years," he predicted.
 
One important issue is an ineffective monetary policy in Europe, he said.
 
Although the European Central Bank cut its key rate to a new low in the past few days, the impact will be limited, and commercial banks will not lend more money to investors and consumers, he said. Banks in Europe are under-capitalised and cannot find investors who want to put fresh funding into their banks. Therefore, they choose to reduce their lending, Donovan said.
 
Major banks have already withdrawn funding from East Asia and other parts of the world, which will affect trade finance and investment activities.
 
Given the size of the European economy, its weakness will have an impact on Asia, he said. Asia must rely more on domestic demand, and Asian banks will have to fill the gap left by European lenders. "It is both an opportunity for banks in Asia to expand their businesses and a challenge for them," he said.
 
Banks in Asia are well capitalised and stronger since going through the Asian financial crisis, he said.
 
Asian banks have already moved to provide financing for importers, exporters and investors after European banks withdrew some funding from Asia last year, he said.
 
He also pointed to the political situation in China, where the so-called Bo Xilai effect had prompted a wave of anti-corruption sentiment over the past six weeks, which had damaged the luxury-goods market in Hong Kong.
 
Long a popular place for shopping for fashionable brands made in Italy and elsewhere, the luxury market in Hong Kong was badly hurt by this political event, he said. "It is the kind of event that we are not used to."
 
Bo, once seen as a contender for the Chinese leadership, was expelled from the Community Party of China in April after a corruption scandal erupted in his stronghold of Chongqing. He had become popular after launching a campaign to revive a Maoist-style redistribution of wealth to the poor.
 
Donovan said he believed China would use public spending to boost growth by providing public housing and investing more in infrastructure projects. Chinese GDP is expected to grow about 8-8.5 per cent this year, as the government wants to make the power transition smooth to maintain a relatively high growth rate.
 
Other Asian countries will also use fiscal expansion rather than monetary policy to boost domestic demand, he added.