Rising exports fuel Thai growth

Bangkok: Thailand's central bank expects the economy to expand the most in at least seven years in 2010 as an export rebound limited the impact from deadly political protests.

Gross domestic product may expand 6.5 per cent to 7.5 per cent, assistant governor Paiboon Kittisrikangwan said in Bangkok yesterday. That compares with an April forecast for growth of 4.3 per cent to 5.8 per cent.

The Bank of Thailand raised borrowing costs this month for the first time in almost two years after the political violence that killed 89 people in April and May ended without derailing the economy.

Deputy governor Bandid Nijathaworn hinted on July 20 the rate increase "won't be a one-time event" and will continue if economic conditions remain strong.

"There is upside potential" for Thai economic growth with the strength in exports and recovering local demand, Wellian Wiranto, an economist at HSBC Holdings in Singapore, said before the central bank's announcement. "Another 25 basis-point rise in late August looks almost certain now. Increasingly, the strength in the economy may warrant another hike after that."

The Thai baht has climbed 3.2 per cent this year, the third-best performer among 10 Asian currencies outside Japan. The benchmark stock index is up 14 per cent.

Thai overseas sales rose 46.3 per cent in June, the most in more than 18 years, to a record $18.04 billion (Dh66.24 billion), prompting the government to raise its 2010 export growth target to 19 per cent. The central bank forecasts shipments will grow as much as 27.5 per cent this year.

"Private investment will pick up as rising demand for exports encourages companies to expand capacity," Paiboon said. "Capacity utilisation in many industries is nearly full now."

Rate decision

The central bank on July 14 raised the benchmark rate to 1.5 per cent from 1.25 per cent, which was the lowest level since July 2004, after keeping it unchanged in the previous nine meetings. HSBC's Wiranto expects the policy rate to rise to 2 per cent by the year-end. The next policy meeting is on August 25.

Prime Minister Abhisit Vejjajiva last week reiterated his target of 6 per cent economic growth this year, which would be the fastest pace since 2004. The International Monetary Fund on July 16 raised its 2010 forecast to as much as 8 per cent, citing exports and rising private investment. Southeast Asia's largest economy after Indonesia shrank 2.2 per cent in 2009.

"The impact of recent political unrest on the overall economy is limited," Paiboon said. "The hardest-hit tourism sector also showed signs of a fast recovery while consumption and investment were only slightly impacted." Tourist arrivals rose 14 per cent in the first half, even after deadly street protests shut down parts of Bangkok in April and May, the Tourism Authority of Thailand said on Thursday.

Thai lenders including Bangkok Bank, the nation's biggest, reported higher second-quarter profit as the improving economy boosted demand for loans. The $272 billion economy grew 12 per cent in the first quarter, the fastest pace since 1995.

Consumer prices rose for a ninth month June, climbing 3.3 per cent from a year earlier.

Inflation may average 3.8 per cent this year, while core inflation, which excludes fresh food and fuel prices, may be as much as 1.3 per cent, the central bank said yesterday. The monetary policy target is to keep the increase in core prices under 3 per cent.

The economy probably expanded more than 7 per cent in the second quarter, and about 10 per cent over the first half of this year, the Bank of Thailand said. It kept its estimate for 2001 economic growth at 3 per cent to 5 per cent.

Abhisit said yesterday the Thai political situation "is improving" after the Cabinet last week lifted the emergency decree in three provinces. Emergency rule remains in 16 provinces, including Bangkok.

"Our political situation has stabilised," the central bank's Paiboon said yesterday. "But it's still uncertain what the situation will be in the future."

Raising the bar