Bloomberg News

Thai Finance Ministry Cuts 2011 Growth Forecast on Exports

September 28, 2011

(Updates with ministry comment in third paragraph.)

Sept. 28 (Bloomberg) -- Thailand’s finance ministry cut its economic growth forecast for this year as the faltering global recovery threatens demand for exports and floods damage agricultural crops.

The economy may grow 3.8 percent to 4.3 percent in 2011, compared with a June forecast for a 4 percent-to-5 percent expansion, said Boonchai Charassaengsomboon, director of the finance ministry’s macroeconomic policy bureau. Gross domestic product may increase 3.5 percent to 4.5 percent in the third quarter from a year earlier, he said.

“Problems in the U.S. and Europe remain key risk factors for global demand and may affect our exports,” Boonchai said at a briefing in Bangkok today. The economy may grow 4 percent to 5 percent next year, he said.

Europe’s debt crisis and a weakening U.S. recovery are threatening growth in Asia, prompting central banks from South Korea to the Philippines to refrain from rate increases in recent months. The Bank of Thailand plans to cut its own economic growth projections when it releases new estimates next month, Governor Prasarn Trairatvorakul said on Sept. 24, signaling there is less scope to raise interest rates further.

Thailand’s central bank lifted the benchmark rate to 3.5 percent on Aug. 24, the ninth increase since the start of July 2010, and said the rate is now close to “normal levels.”

Rate Forecast

The finance ministry expects the rate to remain at 3.5 percent this year and rise to 3.75 percent next year, Boonchai said. Thailand’s economy will improve next year, buoyed by government policies aimed at spurring consumption and a recovery in the global economy, he said. The forecast for 2011 economic growth has a midpoint of 4 percent, he said.

Thai Prime Minister Yingluck Shinawatra has pledged to boost the daily minimum wage to 300 baht ($10), almost double the current level in some parts of the country, and buy rice from farmers at as much as 42 percent above market rates, spurring concern inflation will quicken.

The baht may average 30.5 per dollar this year and 30 per dollar next year, Boonchai said. The currency dropped 0.4 percent to 31.02 as of 2:30 p.m. in Bangkok, taking its decline this month to 3.5 percent, according to data compiled by Bloomberg.

Food Prices

Thai inflation accelerated to 4.29 percent in August, the fastest pace since 2008, as rising food prices countered a decline in oil costs. Core inflation, which excludes fresh food and fuel, was 2.85 percent. The central bank uses core inflation to guide monetary policy and aims to keep the gauge at less than 3 percent.

The Bank of Thailand expects GDP to increase 4.1 percent in 2011 and 4.2 percent next year.

Thailand, the world’s largest rice exporter, yesterday cut its estimate for output from its main harvest of the grain by 2.4 percent after floods damaged farmland.

As many as 173 people have been killed in the past two months as floodwaters spread across 57 of Thailand’s 77 provinces, according to the government. The annual deluge may cost the economy between 20 billion baht and 40 billion baht this year, Boonchai said.

--Editors: Tony Jordan, Stephanie Phang

To contact the reporter on this story: Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net

To contact the editor responsible for this story: Tony Jordan at tjordan3@bloomberg.net


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