Bot Outlines Modest Growth Expectations

[george]

STIMULUS PACKAGE

BOT outlines modest growth expectations

BANGKOK: -- The Bank of Thailand (BOT) predicts the economic-stimulus package introduced by the government last month will boost the economy at least 0.1-0.2 per cent this year and next.

However, it will cost the government Bt48 billion in lost revenue.

The increase in growth will result from higher private consumption and investment following a rise in the net income of businesses and households. Recuperating domestic demand will help compensate for a slowdown in exports, which will be adversely affected by the US recession, the central bank said.

However, the package could make a higher-than-expected contribution to gross domestic product, because of its psychological effect - an effect that could be diluted by risk factors that continue to shake confidence.

"The stimulus package will take time to pass through to consumption and investment, because it functions with private-sector decisions but government spending. Nevertheless, it will have an immediate psychological effect on consumers and investors," said a statement released by the BOT's Wide-Angle Economics Project.

Thitima Chucherd, a senior economist with the BOT's Monetary Policy Group, said the measures were worth implementing, although their effect in bolstering economic growth could only be slight.

The package will build up consumption among high-income people "sooner or later", as they will initially save their rising net income rather than spend it, she said.

Critics say the measures were introduced for political reasons, in order to attract support for the government from the pro-Democrat Party high-income group. They point out that the Bt48 billion in lost revenue in the package could have built the Purple Line rapid-transit route.

BOT economist Prossaya Jitapunkul said the impact of the package on the economy had been forecast only from the expected effect of tax reductions on annual income, tax privileges for investment in long-term equity funds (LTFs) and retirement mutual funds (RMFs), relaxation of depreciation calculations and special business taxes and adjusted property-transfer fees.

Four million taxpayers whose annual incomes are higher than Bt100,000, or 11 per cent of the labour force, will benefit from reduced tax payments on the first Bt150,000 of income. The government will lose Bt15 billion in revenue this year and next from this measure, said the BOT economists.

Those earning Bt2 million annually will take advantage of tax privileges for LTF and RMF investment. The BOT officials said this would help boost consumption, but they believe it likely that these taxpayers will use their existing savings rather than their new income for new LTF and RMF investment. The government will lose only Bt2 million a year from this measure, starting next year.

They said the relaxation of depreciation calculations would bolster investment from profitable companies but not from firms with red bottom lines or Board of Investment-promoted companies. This measure will cause a loss of Bt12.5 billion in government revenue at present values.

The BOT economists said tax privileges for the property sector were expected to boost that industry, as they did after the 1997 economic crisis.

-- The Nation 2008-04-11

[george]

ECONOMIC SURVEYS

Consumer confidence is on the rise

DCLI fall goes against optimistic trend

BANGKOK: -- The Daily Cost of Living Index (DCLI) dropped sharply last month, recording an 18-month low of 52.3 points, although Thailand's Consumer Confidence Index (CCI) increased for the fifth consecutive month.

The University of the Thai Chamber of Commerce said the CCI rose to 80.7 points, from 79.5 in February, thanks to the government's economic-stimulus package, in particular the Small, Medium and Large Village Fund scheme.

However, based on a survey of 2,238 respondents, the DCLI had plunged sharply from November 2006, because of increased concern over rising food and consumer-goods prices.

"Consumers have placed a high emphasis on daily living spending, because they're concerned about their present income while facing higher goods prices," said Thanawat Polvichai, director of the university's Economic and Business Forecasting Centre.

However, consumers expect a better situation in the future, with the centre's latest poll showing the DCLI should rise from 68.2 points to 68.8 in the next three months.

Other related confidence indexes also continued to increase, recording the sharpest rises in 12-16 months. Confidence in the overall economy rose from 72.6 points in February to 73.8 points last month.

Confidence in future income improved from 93.2 points in February to 94.6 last month, while the Future Employment Opportunities Index rose from 72.7 points to 73.5.

Despite improving confidence, signs of recovery are still not yet clear, due to greater worries about rising consumer-goods prices, political uncertainty and continuing high oil prices, said Thanawat.

Other negative factors shrinking consumer confidence are the effect of a possible US recession on the world economy and political chaos from attempts to amend the Constitution.

If these factors do not worsen, confidence should show clearer signs of sustainable recovery in the second half of the year, Thanawat added.

Saowanee Thairungroj, vice president of the university's Research Division, said consumers had greater confidence in purchasing more durable goods like houses and cars and dared to spend on new businesses and travelling.

-- The Nation 2008-04-11