2. Economic Projection for 2008
2.1 The world economic outlook For the rest of 2008, the spillover from the subprime crisis and the slowdown in the U.S. economy will continue to hamper the global growth. The impacts of housing market deterioration and tight credit condition on the real U.S economy are likely to become more materialize in Q2 while the latest indicators suggested that the impacts of financial and U.S economic fluctuations on other industrialized economies are larger than previously expected. The Asian economies are weathering but not fully decouple from the slowdown in industrialized nations. Taking into account the latest developments, growth of the world economy is forecasted to slowdown from 4.9 percent last year to 3.8 percent in 2008. Meanwhile, the increase in inflationary pressures increasingly restrains domestic demand expansion and limits the room for exchange rate policy intervention.
World economic projection
2549 -------------- 2550 -------------- 2551_f
Q1 Q2 Q3 Q4 Year Jan08 Apr08
World 4.9 4.6 5.0 5.3 4.7 5.0 4.1 3.8
USA 2.9 1.5 1.9 2.8 2.5 2.2 1.2 1.0
Eurozone 2.9 3.1 2.5 2.6 2.2 2.6 2.0 1.4
Japan 2.2 2.8 1.6 1.9 1.8 2.1 1.6 1.4
Singapore 8.2 6.4 8.7 8.9 5.4 7.7 6.0 4.0
Korea 5.0 4.0 4.9 5.2 5.7 4.9 4.5 4.2
Philippines 5.4 7.1 7.5 6.6 7.4 7.3 6.0 5.8
Malaysia 5.9 5.5 5.7 6.7 7.3 6.3 5.5 5.0
China 11.1 11.1 11.9 11.5 11.2 11.4 10.0 9.3
Vietnam 8.2 7.7 8.8 8.7 9.3 8.4 8.0 7.3
Source: CEIC , Public agencies and average value from many sources
2.2 Economic Projection for 2008: Private consumption and investment are set to expand more solidly from the low base of last year and help compensate for the slowdown in net export. Energy and food pressures will keep inflation elevated. Current account will remain in surplus, though probably a smaller one than that of last year.
2.2.1 Main Themes
-The higher than expected economic growth in the first quarter and favorable factors supporting the recovery of domestic demand will boost the economic momentum in the rest of the year. In the first quarter, private consumption and investment continued to improve. In the rest of the year, private consumption and investment is foreseen to recover on the back of favorable factors including (i) the low level of interest rate, (ii) an increase in income base, primarily made of rising agricultural price of main crops (rice, rubber, cassava, and palm oil) will benefit farmer to have higher farm income. The salary raise for government servants and state-owned enterprise employees which will be fully effective in 2008 and the additional increase which will be in effect in July will also increase income and support the recovery. The increase in minimum wage of 1-7 baht per day since January 1 and the additional increase in July will be another source of income increase, (iii) the government measures to stimulate and strengthen the Thai economy. These measures include (1) tax stimulus measures to increase people's purchasing power, promote household savings, and help the underprivileged group (2) tax measures to encourage investment and increase competitiveness (3) soft loan rovided to boost local economy and to romote productivity enhancement of small and medium-sized enterprises (SMEs).
- However, there remain downside risks which must be efficiently managed in the remaining of the year. This includes (i) the upsurge in oil prices, food prices, and cost of living. In light of tight labor market condition and high capital utilization rate, inflationary pressures could be mounted easily unless the productivity is increased. (ii) smaller current account surplus led by the rapid increase in import and the substantial deficit of oil trading. (iii) deterioration of consumer and business confidences appear to kick in considering from their decline in April amid rising cost of production and rising conflicts over constitutional amendment. (iv) the impacts of the world economic slowdown on exports is likely to be more manifested in 2008.
- The assessment of strong growth in the first quarter, favorable and risk factors in the remaining of 2008 indicates that the Thai economy looks set to pick up pace from 2007. The composition of economic growth will be more balanced as contribution from domestic demand will be larger than that in 2007 and help offset for the decline of contribution from net export. The growth of export volume is likely to remain on a satisfactory pace in spite of the expected slowdown. However, the import volume will increase more rapidly and thus dampen the contribution of net export volume.
2.2.2 Key Assumptions for 2008 Projection
- The global economy is expected to grow by 3.8 percent, softening from 4.9 percent in 2007. The assumption on the world economic growth is revised downward from the assumption of 4.1 percent employed in the previous forecast. The downward revision was mainly due to the reduction in economic growth in the US, Japan, Europe, China, South East Asia and Asia. The downward revision may be explained as follows:
(1) The latest economic indicators showed that the impact of sub-prime problems on the US economy will be more severe than expected. This induced export of Japan, Europe and Asia to slow down in 2008. In addition, government stimulus measures to encourage investment in many countries will lead to higher import growth. As a result the contribution of net export on economic growth will be less.
Crude oil price and retail oil prices
U.S. dollars per barrel 2006 --------------- 2007 --------------------- ----- 2008 ------
and baht per liter Year Q1 Q2 Q3 Q4 Year Q1 22 May .
Oman 62.6 55.7 65.2 70.7 83.41 68.75 92.34 129.12
Dubai 61.5 55.4 64.8 70.1 85.10 68.83 91.50 128.98
Singapore 95 73.2 68.3 85.7 81.7 95.79 82.88 105.100 140.55
Singapore HSD 76.5 69.7 81.3 86.5 102.60 86.87 114.4 173.10
Retail Benzene 95 27.6 25.8 29.6 28.8 31.69 29.18 33.05 39.09
Retail Diesel 25.6 23.4 25.2 25.9 2 8.45 25.66 29.36 35.94
Source: Energy Policy and Planning and Office
(2) The sharp increase in oil price will dampen the prospect of economic growth in most countries.
(3) The hike in inflation rate fueled by high oil and food prices will be passed through to other commodities’ prices on a wider spectrum. This secondary effect will be built-in the core inflation and set to increase. With higher core inflation, the conduct of expansionary monetary policies to boost domestic demand will be under a considerable scrutiny and caution.
(Continue to).../- Dubai crude oil..
2.1 The world economic outlook For the rest of 2008, the spillover from the subprime crisis and the slowdown in the U.S. economy will continue to hamper the global growth. The impacts of housing market deterioration and tight credit condition on the real U.S economy are likely to become more materialize in Q2 while the latest indicators suggested that the impacts of financial and U.S economic fluctuations on other industrialized economies are larger than previously expected. The Asian economies are weathering but not fully decouple from the slowdown in industrialized nations. Taking into account the latest developments, growth of the world economy is forecasted to slowdown from 4.9 percent last year to 3.8 percent in 2008. Meanwhile, the increase in inflationary pressures increasingly restrains domestic demand expansion and limits the room for exchange rate policy intervention.
World economic projection
2549 -------------- 2550 -------------- 2551_f
Q1 Q2 Q3 Q4 Year Jan08 Apr08
World 4.9 4.6 5.0 5.3 4.7 5.0 4.1 3.8
USA 2.9 1.5 1.9 2.8 2.5 2.2 1.2 1.0
Eurozone 2.9 3.1 2.5 2.6 2.2 2.6 2.0 1.4
Japan 2.2 2.8 1.6 1.9 1.8 2.1 1.6 1.4
Singapore 8.2 6.4 8.7 8.9 5.4 7.7 6.0 4.0
Korea 5.0 4.0 4.9 5.2 5.7 4.9 4.5 4.2
Philippines 5.4 7.1 7.5 6.6 7.4 7.3 6.0 5.8
Malaysia 5.9 5.5 5.7 6.7 7.3 6.3 5.5 5.0
China 11.1 11.1 11.9 11.5 11.2 11.4 10.0 9.3
Vietnam 8.2 7.7 8.8 8.7 9.3 8.4 8.0 7.3
Source: CEIC , Public agencies and average value from many sources
2.2 Economic Projection for 2008: Private consumption and investment are set to expand more solidly from the low base of last year and help compensate for the slowdown in net export. Energy and food pressures will keep inflation elevated. Current account will remain in surplus, though probably a smaller one than that of last year.
2.2.1 Main Themes
-The higher than expected economic growth in the first quarter and favorable factors supporting the recovery of domestic demand will boost the economic momentum in the rest of the year. In the first quarter, private consumption and investment continued to improve. In the rest of the year, private consumption and investment is foreseen to recover on the back of favorable factors including (i) the low level of interest rate, (ii) an increase in income base, primarily made of rising agricultural price of main crops (rice, rubber, cassava, and palm oil) will benefit farmer to have higher farm income. The salary raise for government servants and state-owned enterprise employees which will be fully effective in 2008 and the additional increase which will be in effect in July will also increase income and support the recovery. The increase in minimum wage of 1-7 baht per day since January 1 and the additional increase in July will be another source of income increase, (iii) the government measures to stimulate and strengthen the Thai economy. These measures include (1) tax stimulus measures to increase people's purchasing power, promote household savings, and help the underprivileged group (2) tax measures to encourage investment and increase competitiveness (3) soft loan rovided to boost local economy and to romote productivity enhancement of small and medium-sized enterprises (SMEs).
- However, there remain downside risks which must be efficiently managed in the remaining of the year. This includes (i) the upsurge in oil prices, food prices, and cost of living. In light of tight labor market condition and high capital utilization rate, inflationary pressures could be mounted easily unless the productivity is increased. (ii) smaller current account surplus led by the rapid increase in import and the substantial deficit of oil trading. (iii) deterioration of consumer and business confidences appear to kick in considering from their decline in April amid rising cost of production and rising conflicts over constitutional amendment. (iv) the impacts of the world economic slowdown on exports is likely to be more manifested in 2008.
- The assessment of strong growth in the first quarter, favorable and risk factors in the remaining of 2008 indicates that the Thai economy looks set to pick up pace from 2007. The composition of economic growth will be more balanced as contribution from domestic demand will be larger than that in 2007 and help offset for the decline of contribution from net export. The growth of export volume is likely to remain on a satisfactory pace in spite of the expected slowdown. However, the import volume will increase more rapidly and thus dampen the contribution of net export volume.
2.2.2 Key Assumptions for 2008 Projection
- The global economy is expected to grow by 3.8 percent, softening from 4.9 percent in 2007. The assumption on the world economic growth is revised downward from the assumption of 4.1 percent employed in the previous forecast. The downward revision was mainly due to the reduction in economic growth in the US, Japan, Europe, China, South East Asia and Asia. The downward revision may be explained as follows:
(1) The latest economic indicators showed that the impact of sub-prime problems on the US economy will be more severe than expected. This induced export of Japan, Europe and Asia to slow down in 2008. In addition, government stimulus measures to encourage investment in many countries will lead to higher import growth. As a result the contribution of net export on economic growth will be less.
Crude oil price and retail oil prices
U.S. dollars per barrel 2006 --------------- 2007 --------------------- ----- 2008 ------
and baht per liter Year Q1 Q2 Q3 Q4 Year Q1 22 May .
Oman 62.6 55.7 65.2 70.7 83.41 68.75 92.34 129.12
Dubai 61.5 55.4 64.8 70.1 85.10 68.83 91.50 128.98
Singapore 95 73.2 68.3 85.7 81.7 95.79 82.88 105.100 140.55
Singapore HSD 76.5 69.7 81.3 86.5 102.60 86.87 114.4 173.10
Retail Benzene 95 27.6 25.8 29.6 28.8 31.69 29.18 33.05 39.09
Retail Diesel 25.6 23.4 25.2 25.9 2 8.45 25.66 29.36 35.94
Source: Energy Policy and Planning and Office
(2) The sharp increase in oil price will dampen the prospect of economic growth in most countries.
(3) The hike in inflation rate fueled by high oil and food prices will be passed through to other commodities’ prices on a wider spectrum. This secondary effect will be built-in the core inflation and set to increase. With higher core inflation, the conduct of expansionary monetary policies to boost domestic demand will be under a considerable scrutiny and caution.
(Continue to).../- Dubai crude oil..