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.