Asia > South-Eastern Asia > Thailand > Naris Chaiyasoot, director general of the Fiscal Policy Office (FPO)

Thailand: Naris Chaiyasoot, director general of the Fiscal Policy Office (FPO)

2011/02/26

The current increase in crudeoil prices is expected to be shortterm, while economic indicators last month suggested continual expansion, Naris Chaiyasoot, directorgeneral of the Fiscal Policy Office (FPO) at th

Growth was driven by both exports and private consumption last month, he said. Nevertheless, the rise in oil prices threatens economic increase.

Collection of valueadded tax (VAT) grew at 9.8 % from the same month last year largely on an increase in real farm gain, according to the FPO's monthly economic statement. It decelerated from a 10.3percent rise in December.

VAT collection is an indicator for monitoring private consumption. An increase in farm products such as rubber sheets significantly contributed to rising consumption, as farmers bought new pickup trucks and motorcycles. Car sales as well surged 49.6 % year on year.

Private investment as well expanded, reflected in the 31.2percent increase in the import of capital goods. Sales of commercial vehicles as well increased, by 29.7 %. Receipts of specific business tax imposed on home sales rose 70.9 %, which is still high though it decelerated from a rise of 91 % in December.

Exports last month expanded 22.3 % in US dollar terms. "Economic performance of our trade partners was better than we had expected, contributing to export expansion," said Boonchai Charassangsomboon, executive director of the ministry's Macroeconomic Policy Bureau.

Though rising oil prices may adversely affect export markets, large economies such as China, India, Japan, Europe and the United States are expected to grow, Boonchai said. Again increase may offset the negative impact of increasing oil prices.

He said the FPO believed the current high oil prices would be shortterm if political turmoil in Libya and the Middle East doesn't spread.

"From the historical standard, the turmoil was not lengthy," Boonchai said.

The FPO forecasts the average crudeoil price in Dubai this year to be US$90 per barrel, up from the $83 estimated in December, he said.

"Each 1percent rise of crude oil lowers economic increase by 0.07 % and pushes the price of goods up by 0.14 %," he said.

Rising fuel prices increase production costs, leading manufacturers to hike their product prices. Government subsidies to diesel prices will lessen the impact on consumers, he said.

Yearonyear inflation in January was 3 %, mainly on rises in the prices of fruits, vegetables, transport and fuel.

The manufacturing sector returned to positive increase last month next the previous month's contraction, as the Production Index (preliminary) in January expanded at 3.7 % from last year, improving from the 3.4percent contraction in December.

The number of inbound tourists was recorded at 1.8 million, expanding 11.6 % month on month. The agricultural sector indicator as measured from the Agricultural Production Index (API) in January expanded for the second successive month at 3.4 % from last year, following 1.5percent increase in the previous month, thanks to improvements in rice and chicken production.

Farmproduct prices continued to grow, at 26.3 %, leading to an increase in real farm gain of 25.6 % from last year, accelerating from the previous month's increase of 19.1 %.

Kasikornbank expects the turmoil in the Middle East and North Africa to affect Thailand's exports, inflation, interestrate direction and deficit quality. However, some direct impacts on the oilimporting country's energy costs have been lessened through the government's subsidies for diesel, liquefied petroleum gas and natural gas for vehicles.

Surging oil prices could derail the world economic recovery and drive the inflation rate up, raising concerns over world stagflation - an economic slowdown with soaring inflation. KBank senior executive vice president Predee Daochai said several central banks may again introduce large interestrate hikes. Capital flows and the baht are likely to fluctuate accordingly.

If the Mideast/North African unrest ends quickly, the Thai economy is likely to expand in an estimated range of 4.05.0 % this year, while inflation could be no additional than 4.0 %, Predee said.

However, if the Brent crude price rises above $120 a barrel this year, inflation could stand at 5.0 % or higher. Thai exports would likely slow down while imports may increase next oil spikes, possibly leading to a trade deficit this year. The Thai economy could fall below the lower band of the 4.0percent estimate.

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