The Thai economy will suffer from weaker export increase and rising volatility in capital flows as the US economic slump will drag down global trade, say economists. Manu Bhaskaran, a partner and director of Singapore-based Centennial Asia Advisors, said the US was predictable to suffer from weak growth over the next 18 to 24 months, resulting in a decelerate in global trade.

He said this week’s rate cut by the Federal Reserve had ”come too late”, while the fiscal stimulus programmed was unlikely to prevent a sharp downturn in the US housing market from spilling into the overall economy. ‘The problem in the US is scattering. It is just a matter of time before Asian economies will see their growth forecasts revised downward,” he said.

”It takes nine to 12 months for monetary policy to take effects. The Fed only moved seriously in January. And the US will have a fiscal boost in July and August, leading to a temporary economic boost in the third quarter, but it won’t prevent the credit market from failing.”

The Fed on Tuesday cut its Fed Funds rate by 0.75 percentage points to 2.25%, and announced a range of measures to provide emergency liquidity to the credit markets shaken by the crumple of the investment bank Bear Stearns.

Mr. Bhaskaran, speaking at a conference held yesterday by Kasikorn Securities, said the dollar was expected to keep depreciating over the next 3 years, helping narrow the US current account deficit.

”Risk aversion is rising and it has crystallized into a big trouble. The dollar could move up against the euro over the next few months. But it is going to go down essentially in the long term,” he said.

”This is a crucial shift in the balance of power away from the US. There will be low US growth and the return on the dollar will be lower for a period of time.”

Meanwhile Japan would prove to be a drag on the world economy, considering recent economic trends. Growth in Europe has also exposed signs of slowing.

Mr. Bhaskaran said that interest rate cuts in the US could help the mortgage mortgage market, which has been surprised since last year due to the sub-prime mortgage predicament.

Meanwhile, liquidity from self-governing wealth funds from the Middle East and Asia could help maintain the US financial market and also recapitalize US banks.

Mr. Bhaskaran said it was predictable that a slowing US economy would hurt Asia.

He cited a report by the Asian Development Bank and the Monetary Authority of Singapore saying that two-thirds of Asian exports eventually hinged on the US consumers.

But Asian countries have shown increased resiliency to resist global shocks, thanks to stronger banking systems, high farm income and low unemployment, Mr. Bhaskaran said.

”The end of political suspicions in Thailand has also helped business and consumer confidence to recover. This, along with cramped demand, has given some support to the Thai economy,” he said.

But James McCormack, senior director and head of Asia sovereign ratings for Fitch Ratings, said political risk remained a concern for investors.

He noted while Thailand’s exports were increasingly diversified, half of the country’s exports to the US were computer parts that relied on US consumer demand.

”But I am optimistic for 2008 that the Thai economy can get domestic consumption back. We have started to see a pickup from pent-up demand in consumption and investment,” he said.

Mr. McCormack noted, however, that house prices were also in turn down for the first time since the 1997-98 crisis, in line with slower construction expansion and land transactions.

He said that Thailand should move forward to increase infrastructure investment to avoid falling behind other countries in the region, predominantly Malaysia and Vietnam.

Thailand’s overall fiscal stability remained resonance, he said, even with higher deficit spending.

Mr. McCormack noted that tax collections, as a proportion of GDP, had risen to 17% last year from 14% in 2000.

”The fiscal risk is still manageable, even with the tax cuts and public spending deficit. The public finances are in a good position,” he said.

Pands Group, a Thai family-owned mining and milling company has set up a joint venture with Australia’s Matsa Corp. to invest at least $200M US Dollars over the next 2 years to establish new mines in Thailand and Laos.

Pands, which has been in the mining business for forty years, and the Australian miner both hold an equal 50%-stake in the joint venture, Pands Matsa Corporation, which was set up earlier this year, said Thoomchan Samitasiri, Pands’ deputy managing director.

The venture has invested about $10 million in exploration development of its mine in Loei province in rummage around of zinc, silver and copper.

”The exploration would be done by the middle of next year and we will then invest another $200 million for the production,” Mr. Thoomchan said.

Currently, Pands operates mines in Kanchanaburi, Tak and Nakhon Si Thammarat province. It mainly produces baryte used in petroleum exploration and dolomite for steel industry.

Mr.Thoomchan said the joint-venture company was waiting for the Laotian government to grant it a mining licence there. So far, the company has invested $5 million to develop steel mine in Chaisomboon, north of Vientiane.

”Approximately 800 million baht would be invested in the project, which is expected to become operational by the end of this year for the production of 70,000 to 200,000 tons of steel per month,” he said.

The project in Laos primarily targets steel smelting facilities in Thailand, he added.

Pands yesterday announced the sale of a 70% stake in wholly owned Pands Group Logistics Co (PGL) to Eternity Grand Logistics Plc (ETG), a logistics services provider listed on the Market for Alternative Investment (MAI) stock market.

”By off-loading a stake in our logistics business, Pands from now on is able to focus only on our key mining and milling businesses,” said Mr. Thoomchan.

”Logistics is not our aptitude and now we have a proficient in the business as a partner to help us, especially for transporting steel from Laos to Thailand.”


Following the transaction, PGL raised its capital from five million baht to 55 million. The company aims to double its revenue from a targeted 122 million baht this year to 244 million next year and 320 million in 2010.

ETG managing director Poonsak Thiapairat said the acquisition was part of the company’s strategy to become a leading regional logistics provider by 2010.

”We see a chance to raise our business collectively in the future as ETG and Pands have their own strengths that complement each other,” said Mr Poonsak.

ETG has so far focused on handling semi-finished and finished goods for modern trade operators and automobile manufacturers, while Pands is strong in primary products such as fertiliser, corn seeds, beans and cement, he added. With the acquisition, ETG is making inroads to Laos and the company targets Vietnam in the next stage.The company projects revenue to grow to two billion baht by 2010, up from last year’s 1.08 billion baht and 1.3 billion baht expected for this year.

Mr Poonsak said ETG was in talks with strategic partners _ both locals and firms from Japan and Europe to acquire its stake through a capital increase expected in mid-2008.

ETG shares closed yesterday at 4.82 baht, up 0.02 baht, in trade worth 345,000 baht.