thegreglowe.com

By GREG LOWE
IN BANGKOK

THAILAND’S economy may be the worst hit in Asia as the global slump tightens its grip on the region, says Moody’s Economy.com.

Yesterday’s interest rate cut by the Thai central bank will have little impact on productivity, according to analysts, who predict further cuts in the near-term.

Moody’s says Thailand faces ‘dark times’, after Q4 2008 GDP shrank 22.3 per cent as export demand evaporated.

The government can do little to boost economic growth in the face of declining exports, which contribute about 70 per cent of GDP, and global recessionary forces that continue to crimp consumption, said Moody’s economist Alaistair Chan. ‘A drop in foreign demand for electronics and electrical goods, motor vehicles and other manufactures, compounded by a decline in agricultural prices, has sent export revenue tumbling,’ he said.

‘Thailand’s continuing dependence on exports will limit the extent to which the government can drive growth higher. The economy will recover in line with the rest of the world.’

The government is over-optimistic in predicting economic growth this year, said Mr Chan, who expects the economy to contract 2.4 per cent.

Fitch Ratings, Phatra Securities, KGI Securities (Thailand), the National Economic and Social Development Board, the Economics and Business Forecasting Centre (EBFC) at the University of the Thai Chamber of Commerce, and Moody’s Economy.com all see Thailand’s 2009 GDP at zero to -2.9 per cent, and headline inflation at -0.5 to -1 per cent.

The central bank slashed policy rates half a percentage point to 1.5 per cent yesterday in a third straight monthly cut.

The Bank of Thailand’s monetary policy committee said economic growth is at risk from declining inflation, currently -0.4 per cent, and it decided to ease monetary policy to support economic recovery and safeguard price stability.

Thanawat Phonvichai, director of the EBFC, said the rate cut could boost economic growth by 42.5 billion baht (S$1.81 billion) or 0.3-0.5 per cent, as every one per cent cut in rates increases output by 85 billion baht.

However, he expects the central bank to cut rates again by another half percentage point to one per cent. ‘The government is using this policy to try to increase domestic consumption and to persuade businesses to invest and expand more,’ he said. ‘But right, now the world economy faces a depression and it’s hard to expand exports.

‘The government should concentrate on controlling the baht so it depreciates at the same rate against the dollar as other regional currencies.’

Published February 26, 2009
© The Business Times