By Suttinee Yuvejwattana and Michael Munoz
Aug. 25 (Bloomberg) -- Thailand's economic growth probably slowed for the first time in more than a year as increased exports of rice and rubber failed to offset weak local demand.
Southeast Asia's second-biggest economy expanded 5.8 percent in the second quarter from a year earlier after gaining 6 percent in the previous three months, according to the median forecast of 10 economists surveyed by Bloomberg News. The report is due today at 9:30 a.m. in Bangkok.
Slowing growth means the Bank of Thailand may be on the verge of its last interest-rate increase this year, according to a Bloomberg survey. Governor Tarisa Watanagase is coming under pressure from the government to keep borrowing costs on hold and spur the economy amid signs inflation may be easing.
``Putting politics aside, I see a lot of room for the central bank to increase its key rate by 25 basis points this time,'' said Vishnu Varathan, an economist at Forecast Singapore Ltd., who expects the Bank of Thailand to keep its benchmark unchanged at its meeting on Aug. 27. ``But things are quite messy. The government has tried to politicize interest rates.''
The Bank of Thailand will raise its one-day repurchase rate by a quarter of a percentage point to 3.75 percent, the second increase in two months, according to eight of 13 economists surveyed by Bloomberg. The rest expect borrowing costs to be left unchanged. Of the eight predicting an increase this week, four say it will be the last for this year and the others forecast at least a further quarter-point rise.
Inflation to Peak
``The central bank needs to raise rates another time to anchor inflation expectations and it should be the last time,'' said Usara Wilaipich, a Bangkok-based economist at Standard Chartered Plc., who predicts borrowing costs will start to fall next year. ``Inflation will peak in a couple of months before easing off as growth eases in the second half. The central bank needs to take care of growth.''
Lower fuel costs will start to slow inflation from October onwards, Finance Minister Surapong Suebwonglee said Aug. 15.
The central bank last month raised its key rate by a quarter point to 3.5 percent, the first increase in two years, after inflation hit a decade-high 9.2 percent in July. The move has been criticized by members of the government.
Thailand shouldn't raise interest rates because it will lower economic growth, newly-appointed Deputy Finance Minister Suchart Thadathamrongvej said on Aug. 7. Governor Tarisa should resign if the central bank's policy differs from the government's position, he added.
`Stand Straight'
Governor Tarisa on Aug. 21 vowed to ``stand straight'' and continue to act in ``the best interest of the country'' after King Bhumibol Adulyadej praised the Bank of Thailand for its handling of monetary policy and its concern with inflation.
The central bank and the finance ministry agree that Thailand's economic growth may ease in the second half as a global slowdown reduces demand for the nation's exports, even as their views on interest rates differ.
Thailand is ``relying a lot on exports,'' said Sebastien Barbe, a Hong Kong-based strategist for the investment banking unit of France's Credit Agricole SA. ``With the U.S., Europe and Japan decelerating, the rest of Asia will weaken in the next few months. It is a very challenging backdrop for Thailand.''
Exports from Thailand, which account for about 70 percent of gross domestic product, rose 26.3 percent in the second quarter from a year earlier. That was faster than the 22.9 percent pace recorded in the previous three-month period.
Consumer Confidence
Spending by local consumers and companies hasn't been that strong. An index of consumer confidence fell from April through June in line with surging oil costs, and protests and court cases against Prime Minister Samak Sundaravej's government.
Prime Minister Samak reshuffled his cabinet on Aug. 2, removing five ministers, after court rulings forced out key members of his administration. Allegations that Samak is a proxy for former premier Thaksin Shinawatra have led to protests since May urging the prime minister and his team to resign.
Thailand's Supreme Court on Aug. 11 issued an arrest warrant for Thaksin after he skipped bail and fled to the U.K. instead of attending a court hearing on corruption charges. The election commission will also decide next month whether to seek a court order to disband the ruling People Power Party because of alleged vote-buying.
The following tables show economists' estimates for economic growth and interest rates:
Thailand GDP Estimates
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2Q 2Q 3Q 4Q GDP GDP
Firm YoY QoQ SA YoY YoY 2008 2009
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Median 5.8% 1.0% 4.6% 4.1% 5.0% 5.3%
Average 5.8% 0.9% 4.6% 4.1% 5.1% 5.1%
High 6.2% 1.0% 5.0% 4.8% 5.4% 5.8%
Low 5.5% 0.8% 4.3% 2.9% 4.6% 4.5%
Number of Estimates 10 3 8 8 10 9
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Action Economics 5.8% 1.0% 4.8% 3.6% 5.0% 4.5%
Capital Nomura 5.8% 0.8% -- -- 4.6% 4.8%
CIMB Securities 5.9% -- 5.0% 4.4% 5.3% 5.5%
HSBC 5.6% -- 4.3% 4.2% 5.0% 5.0%
Kasikorn Research 5.8% 1.0% 5.0% 4.6% 5.3% 5.8%
KTB Securities 5.5% -- 4.5% 4.0% 5.0% 5.3%
Moody's Economy.com 6.2% -- -- -- 5.4% --
SCB Securities 5.7% -- 4.7% 4.0% 5.0% 5.5%
Standard Chartered 5.8% -- 4.3% 2.9% 4.7% 4.5%
Tisco Securities 5.6% -- 4.5% 4.8% 5.2% 5.4%
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Thailand Benchmark Interest Rate Estimates
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Aug. Oct. Dec.
Firm 27 8 3
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Median 3.75% 3.75% 3.75%
% Estimates at Median 62% 50% 50%
High 3.75% 4.00% 4.00%
Low 3.50% 3.50% 3.50%
Number of Estimates 13 10 10
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Action Economics 3.50% 3.75% 3.75%
Capital Nomura Securities 3.75% 3.75% 3.75%
CIMB Securities 3.75% 3.75% 3.75%
Credit Suisse 3.75% -- --
HSBC 3.75% 4.00% 4.00%
Kasikorn Research 3.50% -- --
KTB Securities 3.50% -- --
Moody's Economy.com 3.50% 3.50% 3.50%
SCB Securities 3.75% 4.00% 4.00%
Standard Chartered Bank 3.75% 3.75% 3.75%
Reuters IFR 3.75% 4.00% 4.00%
Tisco Securities 3.75% 3.75% 3.75%
Westpac Banking Corp 3.50% 3.50% 3.50%
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To contact the reporters on this story: Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net; Michael Munoz in Hong Kong at mjmunoz@bloomberg.net
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