Central Bank: Budget delay hurts growth

The Bank of Thailand says economic growth this year is likely to fall short of the 2.7% target, given the lower-than-expected data in the first two months of the year.

The longer fiscal 2015 budget delay, by up to six months from three projected earlier, will have a rippling effect on the economy, said Rung Mallikamas, the central bank's spokeswoman.

A major impact will be on investment decisions in the private sector, she said.

"Exports will remain the main growth driver. They look poised to recover in line with the world economy, albiet slowly," Mrs Rung said.

Inflation looks set to rise as most of the gradual cooking-gas price hike that began in September 2013 was passed on to consumers.

In any case, the higher inflation is expected and should remain within the 2.5% range, Mrs Rung said, indicating it should not lead to interest-rate adjustments. 

Moody's Investors Service also said on Friday the country's gross domestic product growth rate would likely slow to less than 3% on average for 2014 and 2015, well below the average of 3.8% growth over the past 10 years.

People buy food and household items at the government-sponsored discount Blue Flag fair at Muang Thong Thai, Nonthaburi province, on April 2, 2014. - TAWATCHAI KEMGUMNERD

The expansion will be negatively affected by delayed public and private investment, and dampened consumer confidence, the ratings agency said in a statement on Friday.

It warned politics continues to weigh on the government bond rating, now at Baa1 with a stable outlook.

The rating is backed by the government's strong financial position, marked by low funding costs and a favourable debt structure, and also by limited external vulnerabilities.

The anti-government protests are negatively affecting Thailand's growth outlook for 2014 and 2015, and could over time, erode its key credit strengths.

"If the current political deadlock continues into the second half of 2014 or if the political conflict escalates and results in protracted negative consequences on the tourism or manufacturing sectors, such developments would be credit negative," it said.

A significant rise in government funding costs or a sharp deterioration in the balance of payments position and a significant loss of official international reserves would also be credit-negative.
Moody's says that the anti-government protests and the ensuing political deadlock are not currently at a point where they would prompt rating downgrades, despite having a negative impact on the country's growth performance.

In its analysis, Moody's rated Thailand's economic strength, institutional strength and susceptibility to event risk as "moderate" while government financial strength was rated "very high".

The report also points out Thailand's core strengths are its government debt carrying capacity, stemming from pro-active and credible debt and monetary policy management, and high foreign exchange reserves in relation to short-term external debt payments.

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