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18 February 2013
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TDRI foresees 5% GDP growth, warns about China slowdown

Call for fiscal space in event of drop in Chinese FDI

The Thailand Development Research Institute (TDRI) expects the economy to grow by 5 per cent this year, likely driven by consumption and private investment, while suggesting that the government keep the fiscal space for a crisis that could be sparked by China posting unsatisfactory economic figures.

Somchai Jitsuchon, TDRI’s research director for macroeconomic development, said there were signs of improvements in the Thai export sector fuelled by a global economic recovery, with expectations of export growth of 8-9 per cent this year.
He expressed concern over China’s economy, which could be bad news for the banking sector and businesses as that country reduces foreign direct investment.

Property prices in China are rising more slowly while commercial bank loans are expanding at a lower rate, which could lead to risks to economic growth and bubbles. Somchai urged the Thai government to maintain sufficient fiscal flexibility to deal with such a crisis should it occur.

Efficient management of public debt is needed, Somchai said, adding that populist policies were another concern.
In the worst case, Somchai said that if Thai gross domestic product expanded by only 4 per cent at the same time as a 10-per-cent rise in annual government expenditures and new populist projects, the public debt could exceed 60-70 per cent of GDP by 2017.

TDRI president Somkiat Tangkitvanich said the government might need to help the business sector raise its production capability in both manufacturing and services.

Suggested short-term measures include machinery upgrades supported by loans and state facilitation of relocation of manufacturing bases for companies hit financially by the rise in the minimum wage.

Medium-to-long-term measures could include adding value through research and development and raise R&D investment to 1 per cent of GDP, Somkiat said.

Somchai noted that this might be a good time for companies to increase productivity by investing in machinery, given the strength of the baht, since it would make imports cheaper.

He also believes the stronger baht will not hurt the export sector critically as history has shown that exporters generally find ways to cope with currency fluctuations. He added that the slowing global economy was a worse problem for the export sector than forex movements.

Somchai said the Bank of Thailand must maintain its inflation target policy in managing the baht. It should avoid resorting to capital controls, as that measure had been proved in the past to yield negative results. He said the BOT was taking the right tack at present and should only intervene in the case of major volatility of the currency.

First published: The Nation website on 26th January, 2013


Somchai Jitsuchon, Ph.D.
Research Director, Inclusive Development