- Credits slowed down faster than. Commercial banks' deposits expanded by 5.7 percent in 2006 from the previous year, but slowing down from 11.6 and 8.3 percent in the first half and third quarter of 2006 respectively, partly as a result of the high base effect in the latter half of 2005. Time deposit expanded continuously, while saving deposit continued to decline, due in part by shifting deposit account from fixed deposit to saving deposit. Commercial banks and finance companies' credit at the end of 2006 grew by 1.9 percent, slowed down from 6.0 percent in 2005 and 4.4 percent in the first half of 2006, with the downtrend in most sectors.
- Liquidity in the Banking system remained high. The credits (including investment in private securities) to deposits ratio picked up slightly from previous quarter to 93.2 percent at the end of 2006, yet lower thanthe ratio at the end of previous year. Hence, the excess liquidity in the banking system estimated as disposable liquidity continued to expand, approximately 730 billion baht at the end of 2006.
- Thai baht has been on appreciating trend and reached its highest level in 9 years at 35.15 baht per US dollar in mid-December, before depreciating by 2.0 percent during end-December due to the BOT's measure on reserve requirement on short-term capital inflows. However, the average baht in December continued to appreciate to 35.78 baht per US dollar and the average baht in the fourth quarterstood at 36.53 baht per US dollar, appreciating continuously from the previous quarter.
In 2006, the baht averaged at 37.89 baht per US dollar, appreciating by 5.8 percent from 2005. The baht hasbeen on appreciating trend in the beginning of 2007, following the same direction of other regional currencies. However, the appreciation of the baht at the faster rate than major currencies and most regional currencies caused the nominal effective exchange rate (NEER) and the real effective exchange rate (REER) to appreciate throughout the year. The average NEER and REER in the fourth quarter appreciated by 8.4 and 9.9 percent year-on-year respectively.
- Fund mobilizing of private sector. The slowdown in private investment and domestic uncertainties that worsened business confidence led to pending decisions on direct funding of non-financial sectors. Non-financial sectors issued new securities worth 89.6 billion baht in the fourth quarter, lower by 32.9 percent from the sameperiod of 2005, while the new issuance throughout 2006 worth 262 billion baht, decreasing by 5.6 percent from the previous year.
- Stock and bond markets. The stock market condition fluctuated, with the improvement in the first four months before slowing down in the middle of the year due to foreign capital withdrawal from the region, as well as domestic interest rate uncertainty. However, the market condition had seen continual improvement in the last quarter, prior to the sharp drop in the last two weeks of 2006 due to the reserve requirement measure on short-term capital inflows which caused foreign investors to sell large amount of stocks. SET index closed at 679.8 at the end of the year, lower by 4.7 percent from the previous year, with market capitalization of 5.08 trillion baht, decelerating by 0.5 year-on-year.
Daily trading in bond market continuously expanded throughout the year, averaged 37.9 billion baht in the fourth quarter, increasing by 153 percent from the same period of 2005. The yields on short term bonds followed policy rate direction, while long term yields remained stable and began to decline in the latter half of the year. Total return index was averaged at 5.45 percent in 2006.
(2.8) Fiscal cash balance recorded a deficit of 62,899 million Baht due to a deficit in a non-budgetary account. In the first quarter of fiscal year 2007 (October - December 2006), total government revenue collection was 286,915 million Baht, increased by 12.9 percent, whereas total revenue collection incurred by 2.0 percent in fiscal year 2006. Compared to the first quarter of fiscal year 2005, collection of excise taxes - especially taxes of oil, spirits, tobacco and beer - increased. This was due to a decreased consumption of oil, increased rate of tobacco tax and increased production of spirits and beer products. However, there were decreases in collections by the Revenue Department especially in the collection of VAT and corporate income tax. The Customs department showed similar downward trends, while the revenue of state enterprises increased. Budget disbursement was 300,179 million Baht, or 17.0 percent of total budget in fiscal year 2007. Such budget disbursement was lower than budget disbursement in the fourth quarter of fiscal year 2006. One of the main reasons was that Budget Act of FY 2007 was not yet enforced in that period. Thus, budget disbursement, especially investment budget, was delayed pending approval of the budget act. Meanwhile, government expenditure was higher than government revenue. Therefore, fiscal balance recorded a deficit of 13,264 million Baht. When such deficit added up with off-budget balance, the government had a deficit of 49,635 million Baht. This was because there was a large to local administrations. Moreover, the government had made a payment to the Agricultural Fund. Hence, cash balance recorded a deficit of 62,899 million Baht, decreased by 20,967 million Baht, compared to the first quarter of fiscal year 2006.
1.2 World economic situation in the fourth quarter and in year 2006
- The global economy in the fourth quarter expanded at a similar rate as in the third quarter. The economic growth of the G3 increased, whereas the Asian economy slowed down. However, the world economy in the whole year of 2006 expanded at a rate higher than in year 2005, contributed by better performance of most economies.
- The US economy expanded by 3.1 percent, comparable to 3.0 percent in the previous quarter. Private consumption, exports and net services were the main factors which supported the expansion of the US economy. There was a decline in private investment in both residential and non-residential construction, and software and parts also slowed down. However. Real estate sector has somewhat stabilized. The real estate prices have decreased but at gradual pace.
- The economy of the Euro area grew by 3.3 percent, up from 2.7 percent in the previous quarter due to the boost of the economies in Germany, Italy and France. Exports and net services were the two main factors which caused the economies in these areas to expand. The unemployment rate decreased constantly, and confidence picked up.
- The Japanese economy grew by 2.1 percent and it was better than 1.5 percent in the third quarter due mainly to the increases in domestic consumption and domestic investment. However, Japan faced slowdowns of exports and net services.
- The Chinese economy grew by 10.4 percent, down slightly from 10.6 percent in the third quarter. Gross fixed capital formation had slowed down since the second half of the year after adopting measures to cool down the overheated economy such as raising interest rate, and increasing the ratio of commercial banks' reserve requirement. Exports and net services were still the main drivers of the Chinese economy.
- The slowdown of exports and net services, especially electronics products, caused the Asian economy to slow down. Singapore, Taiwan, Philippines and Malaysia experienced decelerating exports. However, Hong Kong and Indonesia enjoyed export increase in the fourth quarter. Lowering interest rate in Indonesia helped stimulate consumption and investment. For Malaysia, the acceleration of government spending has helped to boost investment. Private consumption increased in Taiwan. In addition, remitted earnings of Philippines' laborers working abroad supported domestic consumption.
In year 2006, the world economy performed well and the growth was broad-based. The economies in the US, EU, Japan and Asia grew faster than in 2005 due to the supporting of exports and investments, especially in Asia and Japan which benefited from the export of electronics products.
Inflation rate in some countries remained high, especially in the US, EU, and ASEAN, despite the decline in the last quarter caused by reduction in the oil prices. However, central banks still keep interest rate on hold. The US and Malaysia maintained interest rate at 5.25 percent and 3.5 percent respectively. Whereas, Central Bank of Indonesia cut the rate continuously to 9.75 percent, 9.5 percent and 9.25 percent in December 2006, January and February 2007 respectively, in order to stimulate investment. Central Bank of Europe and Central Bank of England were more concerned about the inflationary pressures and they raised the interest rate in the fourth quarter to 3.5 percent and 5.0 percent respectively to slowdown the inflationary pressures. Bank of Japan adjusted interest rate from 0.25 percent in August 2006 to 0.5 percent in February 2007, as well as China who is still exercising tight monetary policy. China also increased the ratio of commercial bank reserve funds to 9.0 percent in November 2006 and to 10 percent in February 2007 in order to discourage the expansion of credits.
Economic imbalance problem has mounted, reflected in the large trade surpluses of the countries in Asia, especially in China and Japan, whereas the US continued to run trade deficit. In 2006, China, Japan and other Asia (Singapore, South Korea, Taiwan, Hong Kong, Indonesia, Malaysia, and Philippine) registered trade surplus at 177.5, 69.3 and 117.8 billion US dollars respectively. The US trade deficit was at 836.0 billion US dollars.
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