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ASIAN ECONOMIC MONITOR THAILAND REPORT

Looking for recovery

ANN/THE NATION
Thailand's economy in the third quarter is likely to recover from the first half, with key drivers being government spending and exports.
These include the government's supplementary budget of Bt50 billion (US$1.19 billion), another Bt50 billion of budget left over from the last fiscal year, and a Bt1.3 billion (US$31 million) initial budget to be invested in "mega projects" this year.
The Thai government expects to see GDP growth in the second half improved from the first-quarter growth of 3.3 percent amid a lack of consumer and investor confidence.
In the third quarter, several ongoing negative impacts on the Thai economy -- the effects of the tsunami, unrest in southern
Thailand and the bird flu -- are expected to subside significantly.
This is likely to help boost tourism, although it is unlikely to recover to the level prior to the Dec 26, 2004 tsunami. The third quarter is also slow season for Thai tourism.
Export, import
Exports, particularly from the electronics sector, are also another driver for the Thai economy. The currently weakening baht, assuming there is no major change in China's yuan or other major currencies, will be a positive factor for Thai exports.
However, Thai exports still face the risk of trade partners' economic slowdown, higher competitiveness, and trade competitors' lower production costs.
Several trade competitors have allowed their local oil prices to move in line with the market and their
business operators have already absorbed and survived the impact of higher fuel prices. When global oil prices decline, they would enjoy lower fuel costs, while Thailand would still have to bear the burden of its earlier oil subsidy.
The faster and deeper-than-expected current account deficit has also deteriorated investor confidence. Imports are likely to jump due to high oil prices, and then there is the import of raw materials and capital goods in preparation for the government's investments in mega projects.
The transfer and service balance is expected to record a small surplus as tourism still has not recovered completely. Thus, the pressure on the current account still exists.
Privates rule
In the third quarter, private invest-
ments are expected to expand continually but not at a high level. There is still a lack of investor confidence caused by several uncertainties affecting the economy, particularly the higher oil prices.
However, there are positive factors including the current low interest rate as well as improving corporate results.
Government spending is expected to help boost private investment, as long as the government can restore confidence and create a more investment-friendly environment.
Private consumption in the third quarter is likely to grow at a lower pace or even decline, caused by a lack of consumer confidence because of the economic slowdown, as well as the current account deficit problem.
The high oil prices will continue hammering economic growth, boosting inflation and the current account deficit more intensely.
Other indicators
The prices of goods and services have apparently risen. The higher cost of living, coupled with unchanged incomes, has lowered consumer spending power. There is growing pressure to raise wages, which would boost inflation.
Credit card loans are expected to grow at a slower pace, which is in line with private consumption as consumers are more careful about their spending.
Mortgage loans are likely to record lower growth, which is also in line with a slowdown in the property market as homebuyers take more time in making decisions on purchases.