Latest Thai economic projections too optimistic

Latest Thai economic projections too optimistic

By Anchalee Koetsawang

BANGKOK (Reuter): The latest economic indicators issued by the
Bank of Thailand on Monday were seen by analysts as a bit too
optimistic given the prevailing host of domestic problems facing
the nation's slowing economy.

However, they believed that the central bank's signal to
commercial banks to lower high lending rates could counter some
negativism about Thailand that has gripped many investors.

"The GDP growth (forecast) of 5.9 percent is a bit high...
Private sector estimates range between 3.0-5.0 percent at this
point," said Sriyan Pietzerz, chief strategist at Capital Nomura
Securities.

On the exports front, although analysts saw some signs of
recovery, they believed Thailand would struggle to achieve a
revised 7.2 percent growth this year given the 0.2 percent
contraction in exports in 1996 and existing structural and
cyclical problems facing exporters.

The Bank of Thailand estimated that exports growth during the
first three months this year was 1.5 percent. It revised down the
forecast of export growth for the whole of 1997 to 7.2 percent
from 7.7 percent earlier.

Thailand has been plagued since late last year by an ailing
finance sector that has been badly hit by over-exposure to the
depressed and cash-strapped property sector. High interest rates,
a battered stock market and a currency that has been under
speculative attack recently have compounded matters.

Analysts said high interest rates and structural problems
would continue to hurt the export sector, which went from 23.6
percent growth in 1995 to the bust of minus 0.2 percent growth in
1996.

"As far as the forecast of 7.2 growth in exports...again, I
think that is a bit optimistic as it assumes a very large jump in
the following nine months," Pietzerz said.

The central bank said although exports of high-technology
products, which represent nearly half of the country's total
exports, recorded strong growth in the first three to four
months, sales of labor-intensive products and primary commodities
contracted.

Samarjit Shanka, chief economist for the Asia-Pacific region
at BZW Asia, said concerns remained about the funding of the
current account deficit.

He said although the projection was for the current account
deficit to narrow sharply to six percent of gross domestic
product (GDP) compared with 7.9 percent in 1996, it reflected a
slowdown in investment activities and a plunge in imports rather
than improvement in exports.

"What is more important is the funding of the current account
deficit. Successive (monthly) balance of payment deficits suggest
that capital flows currently are inadequate to finance the
shortfalls," he said.

"Export performance will be watched closely as it is a key to
finance the shortfall. Investors should wait at least until the
third quarter of 1997 to become convinced of the sustainability
of the export recovery," Shankar added.

Song Seng Wun of ABN-AMRO Hoare Govett said his focus was
still on Thailand's domestic problems.

A slowdown in private investment and domestic demand as well
as escalating problems in the financial sector would pose great
challenges to Thai authorities, he added.

"The external factors are less problematic but the problems on
the domestic front seem to have intensified...particularly now
that a can of worms has been opened by the collapse of the merger
deal between Fin One and Thai Danu," Shankar said.

Thai Danu Bank and Finance One Plc failed last Friday to agree
on a planned merger that would have been a model for much-needed
consolidations in the weak finance sector.

But analysts said rates were set to come down from current
highs of 12.75-13.00 percent after the central bank told
commercial banks that has restructured the calculation of the
minimum retail rate.

While this could help ease some domestic woes, any economic
revival was unlikely too soon, they added.