The European sovereign debt crisis continues to have global implications as Thailand makes plans to cut interest rates should the euro-zone situation worsen.
Last year’s floods severely disrupted company supply chains, including those of integral companies like Toyota Motor Corp. This led Thai Prime Minister Yingluck Shinawatra to implement growth boosting measures such as raising minimum wage and promising a spending injection for infrastructure projects of up to 2 trillion baht (£40.65 billion) over seven years.
With Europe in turmoil, declining demand for exports from Thailand has seen overseas sales for June of 20.13 billion dollars, a slip of 2.5 per cent. Despite reports of a 7.68 rise in May export levels are expected to continue falling. Although borrowing costs for the nation have remained unchanged, last month predictions for expansion were reduced by the Asian Development Bank whilst the Thai Central Bank cut its export growth forecast by a per cent, from 9 to 8.
To that end Radhika Rao, Forecast Pte economist, stated that: ‘The outlook for Thai exports is not without risks, especially as discretionary purchases and commodities feel the heat from global growth slowdown fears and the European crisis.’
The Bank of Thailand has intimated its readiness to do more to support growth should the risks increase. With consumer prices rising by 5.09 percent over two months, the BOT cut the 2013 growth forecast to 5 per cent from 5.4. Inflation will be 0.4 per cent lower than earlier estimates but the core inflation forecast remained the same at 2.2 per cent.
With the economy attempting to recover from last year’s floods, until now Thailand has abstained from following China in adopting monetary policy easing measures. Now the BOT has hinted that in order to protect the country from the global slowdown interest rates may be cut.
Satoshi Ushijima, vice president of Mizuho Corporate Bank treasury division, asserted that ‘If Europe’s situation worsens further, it’s possible Thailand will cut interest rates. If the BOT moves before the end of this year, rather than holding rates, it will be a cut’.
Last week the Asian Development Bank announced that more monetary easing and fiscal policies may have to be employed across the region and last year’s global growth forecast was cut by the International Monetary Fund to 3.9 per cent.
BOT Assistant Governor Paiboon Kittisrikangwan summed up the situation today. He implied that although Thailand is prepared to take measures the country will most likely wait until escalating global concerns make them essential. In Bangkok Pailboon said ‘We have room to adjust monetary policy to support economic growth if needed. We think the global economic problems will prolong and there are more risks ahead. So we should save our bullets to use when it’s necessary. If the situation becomes worse, we are ready to do more.”
With the situation in Europe becoming more tenuous every day Thailand may find they have to do more sooner than they think.