The Bank of Thailand cut its 2008 economic growth forecast on Friday to a 4.3-5.0% range from the 4.8-5.8% it had expected in July, citing the impact of the global credit crisis and political unrest at home.
The central bank also lowered its inflation forecast, now predicting an average 6.0 to 6.5% for 2008 rather than the 7.5 to 8.8% projected in July, saying softer oil prices had eased price pressures.
‘Towards the end of the third quarter, the financial crisis abroad caused the balance of risks to shift significantly,’ Assistant Governor Duangmanee Vongpradhip said in a statement.
‘Risks to growth substantially increased due to an expected slowdown in the global economy as well as the impact from domestic political uncertainty,’ she said.
Prime minister Somchai Wongsawat is struggling to survive after army chief Anupong Paochinda said he should have stepped down after violent clashes between police and anti-government demonstrators last week.
‘Overall, these figures look very reasonable. We’re looking for 4% growth next year. There’s upside potential in Thailand if the politics are sorted out,’ economist Nick Bibby of Barclays (nyse: BCS -news -people ) Capital in Singapore said.
‘We’re looking for rate cuts to come through, probably with 25 basis points in November,’ he added.
Economist Thanomsri Fongarunrung of Phatra Securities said: ‘The new forecasts reflect the impact of the global economic slowdown. The market is quite worried that the economy will edge down deeper than expected next year.’
‘Due to the current situation, interest rates will have to move down. It might not take place this year, but we still expect a rate cut next year,’ she said.
The central bank expects growth in 2009 to be 3.8-5.0%.
Annual inflation hit a 10-year high of 9.2% in July but has since eased sharply to 6.0% in September thanks to cheaper oil and local petrol prices, plus transport and utility charge subsidies.
Last week, following two straight increases, the Bank of Thailand left its main interest rate unchanged at 3.75% after a fall in inflation that gave it room to focus on the risks to growth from the credit crisis.
In a Reuters poll in September, economists forecast inflation would be 6.5% in 2008 rather than the 7.0% expected in July due to sharply lower oil prices in the last few weeks.
The central bank also trimmed its projection for 2008 core inflation, excluding food and energy prices, to 2.0-2.5% from 2.8-3.8% in July.
The upper end of the new range is well below the 3.5% ceiling of a target range adopted by the central bank in 2000.
The economists polled by Reuters in September had expected 2008 growth of 5.0%.
Thailand’s current account was expected to show a US$1.0-4.0 billion surplus this year, unchanged from the forecast in July, the central bank said, after a US$15.8 billion surplus in 2007.
Exports were projected to grow 20-23% in 2008, up from a 17.3% rise in 2007. The forecast was higher than July’s 16.0-19.0% projection.
But due to the global financial turmoil, the BoT expected export growth next year to slow to 7-10%.
‘The impact of the credit crisis on our exports right now still hasn’t shown significantly but it’ll definitely hit us…, starting from this final quarter,’ Charl Kengchon of Kasikorn Research Centre said.
The central bank predicted the value of oil-inflated imports would rise 28-31% in 2008, compared with the 27-30% forecast three months ago. Imports rose 9.1% in 2007.