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EURO CRISIS

BOT lowers export growth target to 8%

The Nation

GDP still expected to expand in range of about 6%

BANGKOK: -- The Bank of Thailand yesterday lowered its 2012 export growth target to 8 per cent from 9 per cent because of the euro crisis, but left its economic-growth forecast untouched at about 6 per cent on the expectation that rising domestic demand would offset slowing exports.

"We haven't lowered our economic-growth forecast, since GDP in the first quarter of this year grew faster than predicted," said Sontham Pinto, director of the central bank's macro-economic division.

The BOT's Monetary Policy Committee has cut its growth projection for the euro zone's gross domestic product to minus-0.7 per cent from minus-0.5 per cent, the central bank said.

For Thailand, the risks are the threat of the global economy sputtering and the delay in government budget disbursement, Sontham said.

"Our biggest concern is a slowing down of the global economy. There is room for monetary easing if the situation gets worse, but if not, the current policy rate of 3 per cent is accommodative for economic growth."

Singhachai Boonyayothin, a BOT executive, said Thailand had yet to experience a credit crunch. Demand for US dollars did not rise significantly, he said.

The baht appreciated slightly against the dollar after Greece's election, which was won by pro-bail-out parties.

The market is still closely watching the developments in Greece, he said.

Kasikorn Research Centre predicts that the baht will rise to 29.5 per dollar by year-end and warns of high volatility in the financial market.

Charl Kengchon, managing director of KResearch, listed three scenarios for the European crisis.

First, Greece succeeds in negotiating with major creditors - the International Monetary Fund, European countries and the European Central Bank (ECB) - then remains in the euro

zone. Greece would have to continue its austerity programme. But Europe would have to lay down a sound fiscal framework for the region to win back confidence.

Second, Greece does not succeed in negotiations with its major creditors and faces a liquidity crunch, as it has to pay debts worth ¤10 billion (Bt396 billion) in the middle of next month.

Greece is forced out of the euro zone. The ECB and European leaders implement measures to prevent a contagion effect. Third, Europe cannot contain the damage, investors panic and the economy of the region contracts sharply, which poses a greater risk for the global economy.

The research house expects a compromise to be reached by Greece and its creditors. Then the European economy is expected to shrink by 0.3 per cent. Many regions of the world would also suffer a slowdown.

The US economy may be subject to higher risk, and this could lead to more injections of money into the economy, in what is known as the third round of quantitative easing.

The Thai economy would not be affected and could expand 5 per cent this year or in the range of 4.5-6 per cent. Inflation is expected to drop to 3.5 per cent from 3.9 per cent estimated earlier.

Exports to Europe are relatively small at 7.5 per cent of Thailand's total exports, compared with 13.1 per cent for Vietnam. However, as Thailand's total exports are high at 61 per cent of

GDP, the impact would be in the middle of two extremes - serious and less serious.

Singapore, Malaysia, Vietnam and Cambodia may be seriously affected.

Thailand's export growth is projected at 10 per cent, lower than the 15-per-cent rate forecast by the Commerce Ministry.

Tourism likely to be safe

Tourist arrivals from Europe rose 10.9 per cent in the first five months of this year, compared to 7.3 per cent overall. Foreign direct investment from Europe also surged by 221 per cent.

However, the indirect impact may become obvious as importers and banks in Europe may run into a credit crunch and see their credit rating downgraded.

"So Thai businesses should be aware that investors will dump risk assets and hold more US dollar-denominated assets, which could send the US dollar up," he said.

Recovery of the Thai economy would gain traction this quarter and could reach double digits in the fourth quarter due to the low base last year," he said.

Oil prices and government spending should also be closely monitored, he said.

Thai investment in overseas markets over the last 10 years has increased.

Investment in Europe accounts for a small part, compared to the investment made by Indonesia.

Local banks' claims on banks in Europe totalled about US$20 billion (Bt626 billion) - not much compared with the exposure of banks in neighbouring countries to Europe.

Thai banks are expected to lend more to businesses and credit-card holders. This year, credit growth will come in at about 13 per cent, higher than 10.5 per cent projected previously. Demand for liquidity will grow in the remaining months as banks lend more and compete for deposits.

The baht will move up to 29.5 per US dollar if the US Federal Reserve prints more money to inject into the market. Stock markets would be rocked by high volatility, he added.

-- The Nation 2012-06-20