Bank of Thailand revises growth, inflation forecast

news_iconBank of Thailand (BoT) on Friday cut its forecasts for economic growth and inflation – downside risks and uncertainties from the global economy are likely to increase – possibly leading to further revisions before the year’s end, according to a Capital Economics report.

The central bank, in its July inflation report, said it now expects the gross domestic product to expand 5.7% in 2012, weaker than the 6% growth projected in May. In 2013, growth is seen at 5% compared to a previous prediction of 5.8%.

Finally, as any prudent central bank would in the current environment, the BOT reiterated that it “would closely monitor developments in the global economy… and stood ready to take appropriate action as warranted.”

The global economy, given its weak outlook and heightened risks, continues to be the major source of downside risks to economic growth, the bank said.

Global demand conditions continued to weigh on export recovery. Merchandise exports will be weaker than previously assessed, as manufacturing exports suffer from lacking global demand and agricultural exports are negatively affected by contraction in rice exports.

The bank also cut its inflation forecasts and now expects headline inflation to be 2.9% this year and 3.4% in 2013. This compares with the previous projection of 3.5% each this year and the next.

The Thai stock market only gave up a handful of points on Friday, however, enough to break the four-day winning streak in which it rose more than 25 points or 2.3%.

Odds of an easing at the September 5 meeting appear higher now, after the central bank pared its growth forecasts and two MPC members voted in favor of a 25bp cut in the policy rate. The BoT is still confident over domestic growth prospects, and the MPC’s voting history is too short to offer significant insight. Going forward, “it would take a significant worsening of global economic conditions, or unexpected loss of momentum in domestic demand, to push us into penciling monetary easing for the coming months.”