Safe you Finance

Thailand’s economy won’t shrink as much as earlier forecast this year, the Finance Ministry said, as government spending and improving export orders spur a recovery from recession.

Gross domestic product may shrink 3 percent this year before expanding 2.5 percent to 4.1 percent in 2010, Somchai Sujjapongse, director-general of the ministry’s fiscal policy office, said in Bangkok today. The ministry had predicted a 2009 contraction of 2.5 percent to 3.5 percent in June.

Thailand’s exports fell the least in six months in August, and the contraction in manufacturing has eased as the slump in Southeast Asia’s second-largest economy abates. The economy will recover in the second half of this year and resume growth in the fourth quarter, Somchai said.

“The recovery will be obvious in the fourth quarter and the growth momentum will continue to next year, driven by government spending and a recovery in private spending,” Somchai said. “Exports will also improve in line with the recovering economies of our trading partners.”

The $261 billion economy shrank 4.9 percent last quarter from a year earlier, less than a 7.1 percent contraction the previous three months.

The government implemented a 116.7 billion-baht ($3.5 billion) stimulus package in the first half of 2009 and plans to spend 1.06 trillion baht on transportation, logistics, health and education projects over three years to help revive the economy.

Interest Rate

Thailand’s central bank kept its benchmark interest rate unchanged at 1.25 percent for a third straight meeting last month after four cuts from December to April. Bank of Thailand Governor Tarisa Watanagase said Sept. 25 the recovery from the nation’s first recession in a decade will be “gradual.”

The interest rate will stay at the current level until the end of this year as inflation isn’t a problem, said Ekniti Nitithanprapas from the finance ministry’s fiscal policy office. Borrowing costs may rise next year as consumer prices increase on higher oil costs, he said.

The finance ministry expects consumer prices to climb by 2 percent to 3 percent next year, after declining 0.8 percent in 2009, it said in a statement.

The ministry said it expects Thailand’s currency to range from 33.5 to 34.5 per dollar in 2010, from 34.5 this year. The benchmark interest rate will range from 1.25 percent to 1.75 percent in 2010, from 1.25 percent this year, it added.

Source