Thai floods to slash growth, crisis not over for Bangkok

BANGKOK Tue Oct 18, 2011 9:04am EDT

Thai soldiers try to protect the highway as floods advance into Rangsit near Bangkok October 18, 2011.  REUTERS/Damir Sagolj

Thai soldiers try to protect the highway as floods advance into Rangsit near Bangkok October 18, 2011.

Credit: Reuters/Damir Sagolj

BANGKOK (Reuters) - Thailand's economy may grow by little more than 2 percent this year because of floods that have devastated parts of the country and forced a series of industrial estates to close, the finance minister said on Tuesday.

The economy, Southeast Asia's second-largest, will probably shrink 1.1 percent in the fourth quarter from a year earlier, Thirachai Phuvanatnaranubala added in an interview with Reuters, the clearest indication yet of the disaster's economic toll.

His ministry forecast in late September that the economy would grow 4.0 percent this year.

The central bank could help by cutting interest rates when it reviews policy on Wednesday, he said.

"For the Bank of Thailand to lower the interest rate would be nice because, at least for the short term, it would lower the costs for businesses," he said.

"But I don't have the authority to interfere. I only hope that the Bank of Thailand has enough common sense to judge their way forward."

The central bank has raised its policy rate to 3.50 percent from a record low of 1.25 percent in stages since July last year to cool inflation.

Flooding in the north, northeast and centre of the country has killed at least 315 people since July and damaged large areas of farmland in the world's top exporter of rice.

The cost to the economy could go far higher if Bangkok, which accounts for 41 percent of gross domestic product GDP.L, is hit by floods.

Monsoon rain, high tides and water flowing from reservoirs in northern Thailand had threatened the capital at the weekend but its defensive system of dikes and canals held.

However, Bangkok Governor Sukhumbhand Paribatra warned the danger was not over, even if the city escapes the sort of flooding that has overwhelmed other areas, including the ancient capital of Ayutthaya and its centuries-old temples.

"We are still concerned that there could be more rain and high sea tides at the end of this month that could put us at risk again," Sukhumbhand said on Tuesday, asking residents to leave temporary dikes made of sandbags in place.

MIXED MESSAGES

At least six big industrial estates have now been halted by the floods, mostly in central Ayutthaya province.

Officials had sent conflicting signals about the danger to the Nava Nakorn industrial estate north of Bangkok, which has 270 plants and about 270,000 workers, until the government told firms to halt operations on Monday as floodwater breached its walls.

Hiroshi Minami, head of the local unit of Japanese chip maker Rohm Co Ltd 6963.OS, said the government did not appear to have learnt from experience at other industrial estates.

"We needed early warning," he told Reuters Television on Tuesday, adding Rohm customers around the world would suffer.

Reuters reporters said production appeared to have halted at the estate and workers were trying to protect their factories. An army official said at least 10 percent were under water.

Industry Minister Wannarat Channukul said Western Digital Corp WDC.N could lose about 80 billion baht in exports of hard disk drives from two plants forced to close because of the floods.

It might take the company eight months to resume operations, he added. It sources 60 percent of its global output from Thailand.

CP All Pcl (CPALL.BK), the country's biggest convenience store operator under the 7-Eleven brand, said it had closed about 150 outlets, up from 70 last week, and shut a distribution centre in Nonthaburi province.

The government is pushing ahead with a big increase in the minimum wage from April 1 despite the huge bill companies face to restart their operations once the waters subside.

That will add to the central bank's dilemma at the policy meeting on Wednesday. Core inflation is near 3 percent, the top of its target range, but the economy is under threat from both the floods and lower demand in Western export markets.

To fund the recovery effort, the cabinet approved an increase in the budget deficit to 400 billion baht for the fiscal year from October 1 from an initially agreed 350 billion.

Deputy Prime Minister Kittirat Na Ranong said the government would look at ways to borrow "several hundreds of billions of baht" to fund the rebuilding and Finance Minister Thirachai said it could turn to a multilateral institution to tap into its technical expertise as well as its funding.

(Additional reporting by Jason Szep, Panarat Thepgumpanat, Pracha Hariraksapitak, Jutarat Skulpichetrat, Prasit Promthong, Orathai Sriring and Apornrath Phoonphongphiphat in Bangkok and Saikat Chatterjee in Hong Kong; Editing by Robert Birsel)