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Thailand slashes growth forecast as floods hurt economy | Thailand slashes growth forecast as floods hurt economy |
(40 minutes later) | |
The Bank of Thailand (BOT) has slashed its growth forecast for the current financial year after the country was hit by its worst flooding in decades. | The Bank of Thailand (BOT) has slashed its growth forecast for the current financial year after the country was hit by its worst flooding in decades. |
The central bank cut its forecast to 2.6% for 2011, down from an initial projection of 4.1% growth. | The central bank cut its forecast to 2.6% for 2011, down from an initial projection of 4.1% growth. |
The floods have affected one third of all provinces in the country and forced several industrial estates and factories to shut down. | The floods have affected one third of all provinces in the country and forced several industrial estates and factories to shut down. |
The BOT kept the interest rate on hold at 3.5% in a bid to boost growth. | The BOT kept the interest rate on hold at 3.5% in a bid to boost growth. |
"The downward revision in gross domestic product (GDP) forecast was expected, given the severe damage dealt to the manufacturing, agricultural and services industry," said Penn Nee Chow of UOB Bank. | "The downward revision in gross domestic product (GDP) forecast was expected, given the severe damage dealt to the manufacturing, agricultural and services industry," said Penn Nee Chow of UOB Bank. |
"And with Bangkok now more than likely to be flooded, vital financial and other services, as well as tourism will be dealt a blow." she added. | "And with Bangkok now more than likely to be flooded, vital financial and other services, as well as tourism will be dealt a blow." she added. |
Economic impact | Economic impact |
Authorities have warned the floods may last for another four to six weeks. Heavy flooding has forced almost 1,000 factories to shut down. | Authorities have warned the floods may last for another four to six weeks. Heavy flooding has forced almost 1,000 factories to shut down. |
Last week the central bank said the damage to industry may be more than 100bn baht ($3.3bn; £2.1bn). | Last week the central bank said the damage to industry may be more than 100bn baht ($3.3bn; £2.1bn). |
"In terms of flood impact on factory output and business sectors, it seems like capacity utilisation for October will be very low," said Rahul Bajoria of Barclays Capital. | "In terms of flood impact on factory output and business sectors, it seems like capacity utilisation for October will be very low," said Rahul Bajoria of Barclays Capital. |
"A drop in industrial production to the tune of 15%-20% month-on-month cannot be ruled out." he added. | "A drop in industrial production to the tune of 15%-20% month-on-month cannot be ruled out." he added. |
To make matters worse, Yingluck Shinawatra, Thailand's prime minister, has said it may not be possible to protect the country's capital Bangkok from flooding. | To make matters worse, Yingluck Shinawatra, Thailand's prime minister, has said it may not be possible to protect the country's capital Bangkok from flooding. |
Bangkok contributes almost 41% to the country's GDP, and analysts have warned that any substantial damage to the capital may hurt growth even more. | Bangkok contributes almost 41% to the country's GDP, and analysts have warned that any substantial damage to the capital may hurt growth even more. |
'Difficult to justify' | |
The central bank also cut its growth forecast for 2012 to 4.1% from 4.2%. | |
However, some analysts said that they were surprised by the bank's move to cut its projection for the next year. They said reconstruction and rebuilding efforts after a natural disaster generally boost economic growth. | |
"Trimming 2012 GDP, even if by just 0.1 [percentage] point, is difficult to justify. A sharply weaker 2011 would point to faster growth in 2012," said Ramya Suryanarayanan of DBS Bank. | |
At the same time, the central bank cut it forecast for inflation for 2012 to 3.8% from 3.9%. | |
Ms Surayanaryanan added that the 'dovish comments' by the central bank were an indicator that it may cut interest rates going forward. |