(2) Overall, the economy expanded by 5.0 percent in 2006, above that of 4.5 percent in 2005. The leading driver was strong export volume which expanded by 9.0 percent owing to a robust global economy. Import volume growth, however, dropped by 0.8 percent comparing with 8.8 percent increase in 2005 following a slowdown in private consumption and investment which expanded only by 3.1 and 3.9 percent, respectively.(1) The slowdown in domestic demand was due to higher oil price, rising inflation and interest rate uptrend. Moreover, rising concerns over domestic situation both in the Southern unrest and political uncertainty also dampened people and investors' confidence. (2.1) Exports of goods and services were the key drivers for the Thai economy in year 2006, especially in electronics goods and tourism services. In 2006, the volume of exports in goods and services increased sharply by 46.7 percent, comparing to 16.5 percent increase in 2005. The domestic demand (including changes in inventories) increased merely by 0.3 percent, slowing down from 7.3 percent in 2005. Therefore, production and service sectors which related to exports gained higher benefits from the economic situation than those with current income or business that depended on the domestic economy. The exports which expanded well were those in the high import-content industries which tend to generate benefits to only limited group of people. ******************************************************************************************************* (1) In 2005, private consumption and investment expanded by 4.3 and 10.9 percent, respectively. ****************************************************************************************************** - In year 2006, the value of exports was 128,220 million US dollars; increased by 17.4 percent from 2005. This was equal to 4,849,247 million baht; which increased by only 10.2 percent due to the appreciation of the Baht. Exports benefited from the world electronics uptrend, and the development of new technology and design of televisions and radios, for example, LCD and plasma televisions has induced demand in the market. Furthermore, the acceleration of television sale in the US market before the decision to scrap the GSP in television products with Thailand in year 2007 also explained the rapid increase. Air conditioners and parts also increased as well as agriculture products, for example, rice and rubber. The price of industrial products still increased in the second half of the year. Consequently, the total value of exports continued to rise. However, the exports volume softened in the second half of the year from 13.9 percent increase in the first quarter to 10.9 percent, 4.9 percent and 8.7 percent in the second, third and fourth quarter respectively, signaling that electronics cycle is entering the downtrend. The signs of slowdown began in the second quarter and it was also caused by the high base effect as exports growth was buoyant in the third quarter of 2005. The price and quantity of the exports in year 2006 increased by 7.2 percent and 9.5 percent respectively. There has not been a clear evidence of the impacts of baht appreciation on exports. The Baht appreciated from 40.98 Baht per US dollar in the fourth quarter of 2005 to an average of 39.29, 38.07, 37.64 and 36.53 Baht per US dollar in first, second, third and fourth quarter in 2006. Exporters, especially those who mainly rely on domestic raw materials and being labor-intensive, such as agro-industry products, textiles, clothes and shoes will suffer more than the technology intensive industries which depend on imported inputs. The reason is that labor-intensive industries can not fully adjust price in terms of US dollar upward, whereas there were increasing burdens from higher wage, interest rates and oil price in Baht terms with no benefit of obtaining cheaper imports. - The value of import in year 2006 was 125,975 million US dollars, increased by 7.0 percent comparing to 25.9 percent increase in 2005. This is due to a slow down in most categories of imports, especially import of oils which rose by 20.9 percent, down from 59.1 percent in 2005. Imported raw material products for export and domestic use increased by 4.3 percent and capital goods increased by only 3.9 percent thanks to sluggish investment. - In year 2006, the trade balance was in surplus at 2,245 million of US dollars, even though trade balance in the first half of the year was in deficit at 1,929 million US dollars. Trade balance of oil recorded a deficit at 15,288 million US dollars, but non-oil trade balance registered a surplus at 14,810 million US dollars. Trade surplus together with the surplus in net services income and transfers of 996 million US dollars resulted in a current account surplus of 3,240 million US dollars, equivalent to 1.5 percent of GDP. (2.2) Private consumption and investment continued their slowdowns in 2006, expanding by only 3.1 and 3.9 percent from 4.3 and 10.9 percent in 2005 respectively. This was a result of reduced purchasing power in response to high oil prices and commodity prices, uplifted interest rates and deteriorated consumer confidence since the beginning of the year. Private investment slowed down both in equipment and machinery and construction, particularly housing construction. Negative factors include (i) Soaring oil prices and high interest rates that put pressure on production cost (ii) Political uncertainty that worsened business confidence and led to pending decisions on investment. (2.3) Government consumption and investment slowed down. Government consumption expended by 3.4 percent, slowing down from a high growth of 13.7 percent of the previous year. Government investment increased by 4.5 percent, lower than 11.3 percent in 2005, partly due to delayed disbursement of state enterprises in infrastructure and logistic developments. (2.4) A reduction in inventories was seen in 2006. Stocks declined by 37,613 million baht at the 1988 constant price, compared to increases of 68,280 million baht in 2005. This was mainly because of strong exports in manufacturing products that depleted stocks of finished products as well as raw materials and electronics components. The use of inventories allowed imports in 2006 to decline despite a strong economic growth. A reduction in inventory stock in 2006 would necessarily lead to rising import in 2007. (Continue to).../(2.5) Production side..