- Production side in the first nine months expanded well both in agricultural and non-agricultural sectors
- Manufacturing production expanded by 6.2 percent, despite a slowdown since the beginning of the year. Significant increases in manufacturing production were in electronics, vehicles, construction and paper.
It is worth noting that although electronics production grew noticeably, capacity utilization rate has not significantly increased. This somewhat reflects that productions were running efficiently because the machine had been replaced or modified last year when imports of industrial machineries and electrical machineries rose sharply.
- Agriculture sector expanded by 6.7 percent compare to expansion of 4.4 percent in 2005, with major increasing products include paddy, cassava, sugar cane and oil palm. Agricultural products were, however, adversely affected by flood in the third quarter.
- Hotel and restaurant expanded by 11.3 percent, part of this expansion came from low base effect. The first half of 2005 was the recovery period from the result of tsunami disaster in December 2004 that have effect on tourism sector almost throughout 2005.
- Economic stability remained favorable, though facing with high inflationary pressure in the first half of the year, but diminishing in the third quarter. Current account also showed a smaller deficit.
Inflationary pressure stayed high in the first half of the year but having less pressures on price in the third quarter. In the third quarter, the inflation rate was 3.6 percent which slowed down from the first half of the year. This is due to high price base in the same time last year, and decrease in oil price. The headline inflation continued to slow down in October to 2.8 percent with slightly increase in November to 3.5 percent, due to flood impacts on agricultural product prices. Core inflation in third quarter was 1.9 percent slowed down from the first and second quarter, which continue to slow down to 1.8 percent and 1.7 percent in October and November respectively.
Average headline inflation during the first 11 months of 2006was 4.0 percent and core inflation was 2.4 percent.
- Employment rose and unemployment rate was equal to the same period of 2005. The number of employed person in the third quarter were 36.68 million people, rose by 0.6 percent from 36.48 million people in the third quarter of 2005. The number of employment in agriculture sector declined by 1.6 percent compared with the same period last year due to flood in the northern province. While the number of employment in manufacturing sector increased by 2.2 percent from the same period last year. The employment in construction sector increased by 5.27 percent and a slight increase in manufacturing sector of 0.4 percent. Meanwhile, unemployment rate was 1.36 percent equal to that of the third quarter of 2005. The ratio of job offers to applicants slightly increases from 1.3 percent in the second quarter to 1.5 percent in the third quarter. This ratio indicated less tight labor market.
- Petroleum consumption declined in the first nine months by 2.0 percent despite high economic growth of 5.3 percent. This showed an improvement compared with 9.7 and 0.4 percent in 2004 and 2005 respectively
- Public debt: At the end of August 2006, public debt was 3.23 trillion baht, approximately 41.28 percent of GDP, slowed down from 41.69 percent at the end of June 2006 and dropped from 46.4 percent at the end of December 2005.
- Externality stability was favorable. International reserves stood at 61.59 billion US dollars at the end of August 2006, and continued to increase to 62.30 billion US dollars on 17th of November respectively. International reserves accounted for 3 times of short-term external debts and equivalent to 5.88 months of import, which is considered to be stable level.
- Fiscal cash balance recorded a surplus of 35.614 billion Baht in the fourth quarter of fiscal year 2006 (July-September 2006). The fiscal position in the fourth quarter improved, as compared to a surplus of 16.099 billion Baht in the fourth quarter of fiscal year 2005, due to a surplus of 55.24 billion Baht in the off-budget balance. This was because the government issued T-Bill in order to increase its liquidity. However, fiscal balance in the fourth quarter of fiscal year 2006 recorded a deficit of 18.826 billion Baht due to a decrease in government revenue collection. More specifically, import duties and excise taxes (i.e., spirits and automobiles) decreased, and the total budget disbursement, especially current expenditures, significantly increased.
In fiscal year 2006 (October 2005-September 2006), the total net revenue was 1,339.4 billion Baht, or increased by 5.9 percent. Due to decreases in excise tax and custom duties, the total net revenue expansion decreased from 12.2 percent in fiscal year 2005. The collection of excise tax reduced because oil tax, automobile tax and tobacco tax decreased in tandem with the decline of consumption of those respective products as well as the scheme of a diesel tax reduction in the beginning of fiscal year 2006. The sales of automobiles also decreased. Moreover, the collection of tobacco tax reduced due to an increased tax rate of tobacco products. As far as custom duties are concerned, the collection of import duties declined ecause of a decreased rate of import duties in line with the international agreement of free trade and Thai Baht appreciation. As for the government expenditures, the total budget disbursement in the fourth quarter of fiscal year 2006 was 1,394.6 billion Baht, or increased by 12.1 percent. Such budget disbursement, around 93.4 percent of overall budget, was higher than that of fiscal year 2005, around 91.1 percent of overall budget. Because budget expenditures are higher than government revenues, fiscal balance registered a deficit of 55.2 billion Baht. Such fiscal deficit when combined with a surplus of off-budget balance, around 92.7 billion Baht and the government issued T-Bill around 80 billion Baht returned the fiscal cash balance to a surplus of 37.5 billion Baht.
- Financial Conditions: In the third quarter, the authority hold the policy rate unchanged but commercial banks' interest rates continued to be on the rising trend. As a result, time deposit increased sharply and credit continued to slow down; thus liquidity in the financial system increased. Thai baht and real effective exchange rate continued an appreciating trend.
- Policy rate was stable but commercial banks' interest rates increased slightly. After the latest tightening in June, the Monetary Policy Committee decided to hold the policy rate at 5 percent throughout the third quarter and thereof in response to the slow down economy and lessened inflationary pressure. The Fed Fund Rate was also maintained at 5.25 percent. Meanwhile, policy rates in other industrial countries, in particular Japan, Euro and the UK, were on the rising trend.
Although the policy rate was stable but large commercial banks continued to raise their rates in August. Average MLR and 12-month time deposit rate of five large commercial banks slightly increased from 7.63 and 4.38 percent at the end of the second quarter to 7.75 and 4.5 percent per annum at the end of ovember, respectively. Increasing Interest rate and declining inflation have resulted in a positive real interest rates to be positive since August. The third quarter effective spread, however, was at 3.48 percent slightly decreased from previous quarter due to the increase of interest expenditure at a larger pace than interest revenue.
- The increase of commercial banks' interest rate has resulted in a continual increase of deposits and a slowdown of credits. Commercial banks' deposits, excluding those of new established banks, expanded by 5.6 percent from the same period of 2005, but slowed down from the 7.3 percent in the second quarter due to the high base effect in the latter half of 2005 when commercial banks started to raise deposit rates. Time deposit expanded continuously for three consecutive quarters by 31.6 percent, while saving deposit declined by 14.1 percent from the same period of 2005. Commercial banks and finance companies' credit grew by 2 percent, continuously slowed down for two consecutive quarters. Credit extended to manufacturing sector, which constituted the largest proportion of total credit expanded by only 0.6 percent, the lowest growth rate in three years. Personal consumption credit slowed down from 9.7 percent in the second quarter to 7.7 percent. Credit card spending continued to grow by 16.6 percent but a large number of Non-bank credit cards were terminated. This may belong to certain group of customers that used the card mainly for credit purpose and failed to repay.
- Liquidity in banking system tended to increase since the deposit grew faster than credit. The credit (including investment in private securities) to deposit ratio at the end of the third quarter stood at 92.1 percent declining from 94.4 percent in the same quarter of previous year. The ratio further declined to 91.6 percent in October. The excess liquidity, as a ratio of disposable liquidity, in the banking system continually increased to 750 billion baht in the third quarter or increased by 53.6 percent year-on- year.
- Thai baht has been on appreciating trend with the average of 37.64 baht per US dollar in the third quarter. The baht has rallied 8.8 percent from the third quarter of 2005 and the 9-month average was 38.35 baht per US dollar, appreciated by 4.1 percent. The baht continued to appreciate to an average of 37.3 and 36.5 baht per US dollar in October and November respectively. The appreciation of the baht at the faster rate than major currencies and regional currencies caused the average nominal effective exchange rate (NEER) in the third quarter to appreciate by 8.1 percent and the real effective exchange rate (REER) appreciated by 9.4 percent year-on-year. The Bank of Thailand has managed to contain excessive volatility of exchange rate, resulting in the accumulation of international reserves from 58.1 billion US dollar at end of the second quarter to 62.3 billion US dollar on November 24th and 3.1 billion US dollar increase of net forward position.
- Stock Market and Bond Market The business sector shifted their financing from credit toward direct funding from the market, both stocks and debt securities. Non-financial sectors issued new securities worth 65.2 billion baht increasing by 42.5 percent from the third quarter of 2005. The stable interest rate stimulated rapid growth of debt securities issuance. On the stock market front, although average trading value dropped, but SET index slightly increased due to net buy of foreign investors. The stock market condition improved in the fourth quarter. SET Index closed at 739.06 at the end of November with market capitalization of 5.3 trillion baht. Daily trading in bond market was averaged 30.7 billion baht, doubled from the third quarter of 2005 and total return index has been adjusted upward.
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