Central bank revises forecast to 0-2% growth range

Thailand can expect economic growth of between zero and 2% this year as the global economy will keep sliding until next year, according to a revised forecast by the Bank of Thailand.

The central bank had previously forecast economic growth in a range of 3.8% to 5% this year on the expectation that the global economy would stabilise by mid-2009. Growth could pick up to 2-4% next year, the central bank said in its Inflation Report released yesterday.

The sharply revised forecast by the Bank of Thailand is in line with predictions issued by a number of economists over the past two months. The central bank predicts inflation this year will range between minus 1.5% and plus 0.5%, and between 1% and 2% next year.

Duangmanee Vongpradhip, assistant governor for the Monetary Policy Group, said that the US economy could contract by 3.1% and the world economy by 1%. In the worst-case scenario, the dollar value of Thai exports could fall by 8.5% year-on-year. The best-case forecast sees a 5.5% decline.

The Thai economy is unlikely to experience deflation, although inflation could be in negative territory in this year, Ms Duangmanee said.

"The decrease in inflation will be derived from oil prices, as opposed to overall prices. The trend will not be persistent. And there are no deflation expectations," she said.

The US forecast reflects greater downside risk due to falling housing prices and the weakening financial sector. The Thai economy was expected to decline in the first half and begin to edge up in the second half of the year, she said.

"The global economy and domestic momentum clearly are weakening ... But the easing trend of monetary and fiscal policy and decreasing inflation will aid growth," she said.

The central bank is basing its forecasts on an assumption that disbursement of the government's 117-billion-baht supplementary budget will begin in April.

The central bank has also sharply reduced its forecast Dubai oil prices, the benchmark used in the region, to an average of US$45 a barrel from $95.

Ms Duangmanee said the banking system had responded to the central bank's interest-rate cuts in the past, but high funding costs remained a constraint.

The central bank expects unemployment to rise to one million or 2.8% of the workforce if economic growth is flat this year. It also expects import values to contract by 7-10% year-on-year, with the current account balance ranging from zero to a surplus of $3 billion.