Thread: ECONOMY / 2007 OUTLOOK: UBS sees slowdown ahead

ECONOMY / 2007 OUTLOOK

UBS sees slowdown ahead

UMESH PANDEY
Slower global economic growth coupled with interest rate reductions would likely put pressure on Thailand's growth prospects next year, a leading economist said yesterday. ''Our view is that the global economy is set to grow at a slower pace and this is likely to have an impact on the growth of the Thai economy, which we are expecting will grow at around 3.9% against our growth target of 4.8% for this year,'' said Paul Donovan, managing director for global economics with banking group UBS.

Thailand, he said, would likely see a slowdown in foreign direct investment (FDI), exports and tourist arrivals, which would push down its growth rate.

As well, he said, planned investments by companies over the next year would continue to be influenced by concerns over the country's political direction, a holdover from this year.

''It would only be next year that companies will start to look for investments, which would mean that they would appear in 2008, although I do continue to believe that in the long run Thailand continues to be an attractive investment destination,'' he said.

Thailand's economy, Mr Donovan said, would see a major impact from the global conditions, given that the United States economy is expected to grow by just 2% next year against 3.3% expected in 2006.

A slower economy is likely to propel the Federal Reserve to start reducing its interest rates and this could further lead to Thailand cutting its rates.

''We are expecting the Fed to cut rates by 100 basis points starting in March next year and Thailand is set to follow with cuts of at least 150 basis points next year,'' he said.

The Fed's benchmark rate is currently 5.25% and the Bank of Thailand's 14-day repurchase rate is 5%.

Exports, which have been a key driver of Thailand's economic growth this year with expansion close to 17%, are likely to see a dramatic slowdown as Thailand's trading partners are all likely to see growth easing.

The baht, he said, would likely remain around current levels with the year-end 2007 target at around 37 baht to a dollar, noting that the current strength in the currency had been a result of speculative capital inflows.

Inflation, according to UBS, would likely stay around 2.8% in 2007 against the projection of 4.8% this year.

Mr Donovan cautioned that the US economy was likely to be affected by a severe slowdown in its housing market, the key driver for the country's consumer-led growth.

''Next year our expectation is that we will see housing prices fall by 10% from the 2%-plus drop seen currently and the 12.5% rise witnessed during the earlier part of this year,'' he said.

With the slowdown in housing, disposable income is likely to shrink and it will also lead to the higher savings rate among Americans, thus leading to contraction in the American consumer market that accounts for a third of the world's total consumption.

He said the assumption that growth in the Chinese and Japanese markets would help offset a slowdown in the US was unfounded as consumption trends in Japan, as evident in third-quarter GDP figures released by the government, made him ''nervous''.

''The Chinese market's consumption is nowhere close to what we have in the US, the Chinese market would have to grow by at least 300% over the next year to be able to achieve the consumption levels similar to the US,'' he said.

With the bearish view of the overall outlook of the global economy and of Thailand, UBS said tt was recommending investors to bet on the sectors that are likely to benefit from interest-rate cuts, such as property.
''We have an overweight rating on the property sector, utilities (helped by the new round of independent power plant projects), and telecommunications. While we have a neutral rating on banks and energy,'' said Keith Neruda, head of research for Thailand.

source: Bangkok Post : Business news

Your posts are gaining a cult following.....just wait, did I spell that right???

how about inflation. prices have gone up about 50% in less than 5 years, so in terms of real growth, we might have technically a negative growth despite a nominal positive