Thai economic growth may slow in 2007

Bangkok, Jan 18 | Updated: Jan 19 2007, 05:30am hrs
Thailand's economic growth is expected to slow in 2007 from an estimated 5.1% last year due mainly to a weaker global economy, the Bank of Thailand said on Thursday.

Speaking a day after the central bank cut its key policy rate to spur economic growth, Governor Tarisa Watanagase said exports would remain the "key engine" of growth this year.

But "the economy is likely to slow from last year due mainly to weaker global economies", she told an economic seminar.

"Growth last year was not too bad and driven by exports, but investment remained weak and has not recovered yet," she said.

She did not give a specific forecast, but the central bank said on Wednesday it planned to cut its 2007 forecast of 4.5-5.5%, citing slowing domestic consumption and investment in the fourth quarter of 2006. It used a 1-day repurchase (repo) rate for the first time as its policy rate, setting it at 4.75% on Wednesday, down from a market rate of 4.93% and against the previous 14-day repo rate of 5%. It was the first reduction in borrowing costs since 2003 and the first cut in headline rates by a central bank of an Asian emerging economy, other than Indonesia, since a record-breaking oil rally fuelled inflation and a flurry of global rate rises.

Analysts said the rate cut showed the BoT had shifted its focus to economic growth after investor confidence was shaken by capital controls imposed last month to curb a surging baht and proposed restrictions on foreign ownership of Thai firms.

A Reuters poll last week showed economic growth in 2007 would slow to 4.5 % from an estimated 5.0 % in 2006.

Finance Minister Pridiyathorn Devakula offered a more optimistic outlook in his speech, predicting growth this year similar to 2006.

"Clearly, exports will be weaker but they will be offset by domestic consumption and investment," he told the seminar. Exports were expected to grow 9.2 % this year, down from 16 % last year, while investment should rise 6 % from 3.7 % in 2006, he said.

He said exports should benefit from the currency controls, which had pulled the baht down to 36.01 per dollar on Thursday from a 9- high of 35.06 before the curbs were introduced.