The World Bank on Wednesday projected the Thai economy could grow 6.2 per cent this year, up from its earlier forecast of 3.5 per cent due to clear signs of  recovery of the global economy.

“All in all, more favourable external environment should help boost real GDP growth to 6.2 per cent in 2010,” the  World bank said in its East Asia and Pacific Economic Update.

“After this year, slower growth in developed countries, emerging capacity constraints as capacity idled during the crisis are quickly put to use, and the weight of the ongoing political turmoil on new investment, should likely keep growth below Thailand’s historical average of 5.1 per cent.

Thailand’s fiscal and financial picture is solid. The fiscal deficit is modest, public debt manageable, foreign exchange reserves much higher than before the crisis, and the financial sector is sound and well regulated.

The slower-than-expected implementation of the infrastructure-focused second stimulus package should help limit the fiscal deficit to 2.2 per cent in 2010, from 4.4 per cent in 2009. Government debt is projected to decline to about 44 per cent of GDP from 45.2 per cent in September 2009.

Foreign exchange reserves, already equivalent to 13 months’ import cover, should rise further as the current account remains in surplus, the report said.

However, the World Bank warned that “the upside is limited due to political and regulatory uncertainty, including from possible political violence and the Map Ta Phut court case. The government investment plan is proceeding at a slow pace, but public investment should contribute to growth. Overall domestic demand should provide a positive but limited contribution to growth.”

The weeks-long anti-government protest of the Red Shirts has continued to press Prime Minister Abhisit Vejjajiva to dissolve Parliament within 15 days.

Protesters besieged the capital’s commercial and shopping district for five consecutive days and briefly stormed Parliament on Wednesday forcing some cabinet members and lawmakers scaled walls to flee and a Black Hawk helicopter evacuated Deputy Prime Minister Suthep Thaugsuban and other key political figures.

The government extended a tough Internal Security Act that allows troops to maintain law and order, but there was no sign of an imminent crackdown.

This year’s inflation is likely to drop owing to sluggish domestic demand while interest rate is expected to rise gradually during 2010. The tight labour market can be a risk factor, which can affect inflation.

Private companies reported difficulties in recruitment and more dependency on foreign labourers.

The central bank is likely to continue to limit the exchange rate appreciation amid concerns that the country will lose competitiveness against China, given that the renminbi has been effectively re-pegged to the dollar since mid-2008, the bank said in its report. (TNA)

Household consumption levels, which are highly correlated with the poverty rate, contracted in 2009 despite the rebound in the last quarter of the year, suggesting a likely increase in the poverty rate compared to 2008

All in all, a more favorable external environment should help boost real GDP growth to 6.2 percent in 2010. After this year, slower growth in developed countries, emerging capacity constraints as capacity idled during the crisis is quickly put to use, and the weight of the ongoing political turmoil on new investment, should likely keep growth below Thailand’s historical average of 5.1 percent. Thailand’s fiscal and financial picture is solid. The fiscal deficit is modest, public debt manageable, foreign exchange reserves much higher than before the crisis, and the financial sector is sound and well regulated.

The slower-than-expected implementation of the infrastructure-focused second stimulus package should help limit the fiscal deficit to 2.2 percent in 2010, from 4.4 percent in 2009. Government debt is projected to decline to about 44 percent of GDP from 45.2 percent in September 2009. Foreign exchange reserves, already equivalent to 13 months’ import cover, should rise further as the current account remains in surplus. Inflation is likely to remain subdued given the slack in domestic demand, and policy rates will rise only modestly and gradually during 2010.

Risks to the inflation outlook include the tight labor markets, with firms reporting difficulties in finding workers and increasing reliance on foreign workers. The central bank is likely to continue to limit exchange rate appreciation amid concerns that the country will lose competitiveness against China, given that the renminbi has been effectively re-pegged to the dollar since mid-2008. Concerns about exchange rate appreciation appear to have led the central bank to start liberalizing the financial account of late, making it easier for residents to invest abroad.

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