Thai economic growth slows in fourth quarter

Stock Market Quote - Business News - Financial News

By Chris Oliver

Last Update: 1:39 AM ET Mar 6, 2007

HONG KONG
(MarketWatch) — Thailand’s economy grew at a slower pace in the fourth
quarter from the preceding three-month period, data released by the
government showed Tuesday.
Thailand’s gross domestic product expanded 4.2% for the October to
December period from a year earlier, slowing from 4.7% growth in the
third quarter, according to the National Economic and Social
Development Board. Analysts said the slowdown was attributable to an
easing in consumption and investment amid political uncertainly and
flooding in certain parts of the country. Thailand has been run by a
military-backed government since Prime Minister Thaksin Shinawatra was
ousted in a Sept. coup. Analysts said the easing in the pace of growth
supported the popular view that the Bank of Thailand will cut interest
rates by 50 basis points in the first half of the year, with additional
cuts possible in the second half.

FT Home

Thais warned growth could fall to 4%

By Amy Kazmin in Bangkok

Published: March 7 2007 00:53 | Last updated: March 7 2007 00:53

Thailand’s
state planning agency predicted a slowdown in economic growth to as
little as 4 per cent this year as official figures on Tuesday showed
the country grew at its weakest pace for two years in the final quarter
of last year.

According to the National Economic and Social
Development Board, Thailand’s economic growth decelerated to 4.2 per
cent year-on-year in the fourth quarter of 2006, after a military coup
overthrew Thaksin Shinawatra, the former prime minister.

On
a quarter-on-quarter basis, the economy grew a seasonally adjusted 0.7
per cent, the worst performance since the first three months of 2005,
when gross domestic product contracted 0.8 per cent quarter-on-quarter
after the Indian ocean tsunami, which devastated Thailand’s crucial
tourism industry.

The NESDB predicted the Thai economy – which
grew 5 per cent in 2006, up from 4.5 in 2005 – would slow to 4-5 per
cent growth this year as the softening global economy reduced potential
for export growth and as political uncertainty weighed on investor
sentiment.

With Thais jittery about the government’s drafting of
a new constitution and fresh elections promised by the end of the year,
“the recovery in investment will not be fully fledged”, the NESDB
warned.

It also warned that economic growth would be at the lower
end of the forecast range unless the military-installed government
accelerated budget spending and got planned infrastructure projects off
the ground.

“The economic cycle requires the government to step
up efforts to promote exports, boost consumption with more budget
spending, [and] support tourism and farm product prices to achieve the
growth target for 2007,” said Ampon Kittiampon, head of the NESDB.

The
grim forecast came as Chalongphob Sussangkarn, a former World Bank
official and president of a respected local think-tank, appeared poised
to be named the next finance minister. If confirmed, Mr Chalongphob,
who holds a PhD in economics from Cambridge university and spent six
years as a World Bank economist, will replace Pridiyathorn Deva­kula,
the former central bank governor who unexpectedly resigned as finance
minister last week.

iWon Money

Political uncertainty clouds view for Thai investors

Economist is named new finance minister, but political uncertainty continues

By Polya Lesova, MarketWatch
Last Update: 2:12 PM ET Mar 6, 2007

NEW
YORK (MarketWatch) — Thailand named an economist to be the new finance
minister on Tuesday, just as it said that economic growth slowed down
in the fourth quarter of 2006, pressured by increasing political
uncertainty and declining business confidence.

Real GDP
expanded 4.2% for the October to December period from a year earlier,
slipping from 4.7% growth in the third quarter, the National Economic
and Social Development Board said on Tuesday. For all of 2006, the
economy grew 5% compared with 4.5% in 2005.

In
a separate development, Thailand named economist Chalongphob
Sussangkarn as its new finance minister on Tuesday, succeeding
Pridiyathorn Devakula, who resigned abruptly last week.

Deputy
Prime Minister Kosit Panpiemras announced the appointment of
Chalongphob, AFP reported on Tuesday. The appointment needs to be
approved by Thailand’s king.

“Chalongphob is probably
going to be more orthodox,” said Roberto Herrera-Lim, an analyst at the
Eurasia Group. “He has the credibility of being a mainstream economist.
He’s going to be more sensitive to how the markets and how investors
perceive economic policy in Thailand.”

The
government’s short-term concern is “restoring the confidence they lost
from the imposition of capital controls and the unpredictable policy
environment,” he said.

A former World Bank economist,
Chalongphob is president of an independent economic institute, Thailand
Development Research Institute, and an adviser to the administration of
Interim Prime Minister Surayud Chulanont. Chalongphob has opposed the
recent introduction of capital controls for foreign investors.

Chalongphob
has a very limited time in office, which poses questions about what he
can realistically accomplish. “This [appointment] keeps Thailand
running in place,” Herrera-Lim said. “He’s not going to be aggressive
in policy-making, but at least it prevents policy from regressing.”

Political uncertainty still clouds investor confidence, growth prospects

Though
a positive step, the appointment of new finance minister doesn’t clear
the political uncertainty, triggered by the military coup last
September, which has weighed heavily on economic growth.

Weak
domestic demand was the main reason for the slowdown in GDP growth,
said Supavud Saicheua, an analyst at Merrill Lynch, in a Tuesday
research note. Private consumption grew only 2.5% year-on-year, the
lowest rate since the second quarter of 1999.

The easing
in the pace of growth supports the popular view that the Bank of
Thailand will cut interest rates further this year, analysts said.

Thailand’s
SET Index ended down 0.7% on Tuesday, failing to participate in the
broader rebound on the Asian markets. The index is now down 0.8% on the
year. See Asia Markets.

The
Thai stock market “is not expected to benefit much from the regional
rebound, as the market is still clouded by domestic uncertainties,”
said Teerada Charnyingyong, an analyst at Phillip Securities in
Thailand, in a note.

In a coup last September, the
military seized power and ousted then Prime Minister Thaksin
Shinawatra. The coup leaders introduced a temporary constitution that
empowers them to appoint and fire the government and the acting
parliament. It’s generally expected that Thailand will have a draft
constitution by the end of the first half of the year, followed by a
referendum to approve it in the third quarter of the year, and
elections by the fourth quarter.

However, political risk
has increased over the last month following the high-profile
resignations of former Finance Minister Pridiyathorn and Somkid
Jatusripitak, economic adviser to the military-installed government who
quit last month less than a week after his appointment. The continuing
insurgency in southern Thailand also poses risks to stability.

“Although
we are finally seeing an effort on the part of policy makers to revive
sentiment by relaxing capital controls further and cutting policy
interest rates, we believe there is unlikely to be meaningful revival
in growth trends over the next six to nine months,” said Chetan Ahya,
an analyst at Morgan Stanley, in a research note.

Gloomy stock market outlook

Increasing political uncertainty will likely weigh heavily on growth recovery, Ahya said.

In
late December, Thailand’s central bank introduced restrictions on
foreign investments in an attempt to curb speculative inflows that had
lifted the baht, by about 17% against the U.S. dollar in 2006. The
measures included locking up 30% of new foreign currency deposits for a
year and penalizing investors trying to repatriate funds quickly.

The
new rules, however, triggered a hemorrhage in Thailand’s equity
markets, with Bangkok’s benchmark SET index tumbling 15% in one
session. In an embarrassing about-face the following day, the
government removed controls on equity investors, but kept controls on
foreign investment in bonds and commercial paper.

Thailand’s central bank scrapped remaining capital controls on March 1, though investor confidence is far from restored. See full story.

The
outlook for the stock market is gloomy, particularly following the Bank
of Thailand’s capital control rule, the amendment of the Foreign
Business Act and political uncertainty, said Wimol Jeampoonsup, an
analyst at Seamico Securities in Thailand, in a research note.

“All
these factors have impacted investors’ confidence and are likely to
continue to affect the local investment climate for some time yet until
possibly the end of the year.”

Herrera-Lim, of the Eurasia
Group, said: “The risk of erratic policy-making is still there, but
probably with this appointment and with the lessons learned in December
last year, the willingness to gamble on unpredictable policies is
probably lower.”




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