- The faster pace of credit expansion indicated that the continued interest rate cuts in 2007 started to have more impacts on real economic activities. In the first quarter, commercial banks’ credit expanded by 11.1 percent, compare to 3.8 percent increase in 2007. Combined with credit extended by other depository financial institutions, credit extended to private sectors increased by 5.9 percent. Except for construction sector, credit extended to private and other business sectors increased at a faster pace. As lending rates had been kept unchanged since the second half of 2007, the reduction in real interest rates was attributable to higher inflation rate. In addition, spread between 12-month deposit and MLR had increasingly widened from 325 bps at the end of 2006 to 468 bps at the end of April 2008.
- Economic stability remained in check but the surge in oil prices continued to put upward inflationary pressures and eroded current account surplus.
- In the first quarter, the unemployment rate remained as low as 1.6 percent, equal to that of in the same period last year. Employment picked up by 1.3 percent in response to the expansion of economic activities
- However, inflation rate accelerated to 5.0 percent in the first quarter from 2.9 percent in the last quarter of 2007 (and accelerated further to 6.2 percent in April which raised an average inflation rate in the first 4-month to 5.3 percent, of which 2.7 percentage points was contributed by the surge in prices of foods and beverages). The broader inflation base resulted in upward pressures on core inflation which continued to pick up the pace from 0.8 percent and 1.1 percent in the third and fourth quarter of 2007 respectively to 1.5 percent in the first quarter of 2008 and 2.1 percent in April.
Contribution to Inflation
2005 2006 2007 4 months 2008
Total 4.5 4.7 2.3 5.3
Food 1.8 1.6 1.5 2.7
Rice 0.0 0.1 0.2 0.2
Meat, poultry and fish 0.4 0.2 0.0 0.6
Vegetables and fruits 0.8 0.8 0.6 0.5
Transportation & Communication 2.2 2.0 0.5 2.0
Public Transport fare 0.6 0.8 0.1 0.1
Oil 2.4 1.6 0.3 2.3
Non-Food 2.7 2.9 0.7 2.5
Source: MOC
- Trade balance recorded a deficit of $ 109 million which was the first deficit in 6 quarters, but service account surplus was higher than normal trend due to the strong expansion in tourism sector in combination with the increase in investment incomes. Current account continued to record a surplus of $ 3,068 million but lower than a surplus of $ 4,689.3 million in the first quarter of 2007.
- The overall energy efficiency continued to improve with the adjustment in energy structure to be more balance.
- The ratio of petroleum used to GDP continued to decline in particular after the lifting of oil subsidy in 2005, which indicated an improvement in energy efficiency. In 2007, the ratio stood at 0.95 declined from 0.9625 in 2006 and reduced to 0.9184 in the first quarter of 2008.
Petroleum Consumption
% YoY ------------ 2007 ------------- 2008
Year H1 Q3 Q4 Q1
Total petroleum 2.7 2.3 3.8 2.4 0.9
Benzene 1.69 2.11 4.39 -1.71 -1.92
Octane(91+95) -6.1 -0.2 -4.7 -18.78 -26.42
Gasohol 37.79 12.91 46.23 77.03 111.95
Diesel 2.13 0.73 5.61 1.81 -0.37
HSD+LSD -1.22 -1.17 1.78 -4.15 -10.23
B5 1360.62 1081.61 1768.31 1391.93 787.29
LPG 14.3 12.59 13.59 18.15 17.59
NGV 117.61 102.92 113.29 139.8 190.52
Source : EPPO
Increased diversification of export markets
(% share) 2538 2540 2545 2549 2550 2551Q1
United Stare 17.8 19.4 19.8 15.0 12.6 11.7
Japan 16.8 15.1 14.6 12.6 11.9 11.3
EU (15) 15.1 15.9 15.0 13.0 12.8 12.8
ASEAN (3) 21.7 21.8 19.9 20.8 21.3 21.6
Middle East 4.5 3.3 3.6 4.4 4.9 4.8
Australia 1.4 1.6 2.4 3.4 3.8 4.0
China 2.9 3.0 5.2 9.0 9.7 9.9
India 0.5 0.5 0.6 1.4 1.7 1.7
Hong Kong 5.2 5.9 5.4 5.5 5.7 6.1
South Korea 1.4 1.8 2.1 2.1 1.9 1.9
Taiwan 2.4 2.7 2.9 2.6 2.2 1.7
South Africa 0.4 0.4 0.5 0.8 0.9 0.9
Others 9.9 8.3 8.0 9.3 10.6 11.6
Source: BOT
Recent indicators, in particular in 2006, showed that the structure of energy consumption become more balance. Over the past 2-3 years, consumption behaviors have been shifted towards alternatives energy, in particular, gasohol, bio-diesel and natural gas and resulted in the reduction of energy costs.
- Consumption of alternative energy continued to increase. Gasohol and bio-diesel consumption rose sharply (from their low base level) by 111.9 percent and 787.3 percent respectively. Similarly, natural gas consumption expanded by 190.5 percent in contrast with the continual reduction in consumption of diesel, fuel oil and regular gasoline of 0.4, 15.4 and 4.2 percent respectively. This reflected the shift in consumer behaviors towards low-cost alternative energy. In addition, energy employed in production becomes more balance. For example transportation and electricity sectors that were highly dependent on gasoline, diesel, and fuel oil have increasingly employed natural gas in their production. In this respect, and in order to strengthen energy efficiency, the government is required to manage energy structure to be free from distortion and promote appropriate use of energy types among different user groups. The sharp increase in the use LPG in transportation would make a good example of further analysis.
- Labor productivity increased by around 4 percent in the first quarter; roughly estimated by the difference between the economic growth and employment growth.
- In 2008, export continued to expand at a satisfactory rate due to the diversification in the structure of export markets. The shift in market structure reduced sensitivity of the Thai economy to fluctuation in the global and industrialized economies.
- The market structure has increasingly diversified with a higher dependency on new markets in contrast with the decline in a share of Japanese and U.S markets.
- Emerging economies become important export markets for the Thai economies, in particular the fast growing China, Eastern Europe and Asia. These economies, particularly Asia, are now the main growth engine for the World economy and their share in global GDP has increased steadily.
- Thailand remained competitive in electronics and mobile industries and parts due to the production base expansion of multi-national corporations and the shorter product life cycle of electronics products resulting from technological advancement that has encouraged a faster product development. The development of products with high digital contents also beneficial. For automobile, exports to Australia have increased following FTA arrangement while exports to the Middle East edged up due to higher petroleum revenues.
- Thailand has been beneficial from the sharp increase in prices of major agricultural commodities following the increase in oil prices that resulted in a heated future markets of commodities. This is partly attributable to a strong increase in demand for energy crops and the reduction of wheat in the world market as a result of supply disruption, as well as, the restriction on rice exports in Vietnam.
Net trade balance
Billions US$ 2548 2549 --------------- 2550 --------------- ---2551---
ทั้งปี Q1 Q2 Q3 Q4 Q1 Apr.*
Trade balance (Custom basis) -7.3 0.9 12.5 3.5 1.4 2.9 4.6 -1.2 -1.8
- Oil -17.5 -20.1 -20.1 -4.3 -5.1 -5.4 -5.4 -6.8 -2.4
- Non-oil 10.1 21.1 32.6 7.7 6.5 8.3 10.0 5.6 0.6
Source: BOT
* data from Ministry of Commerce
Note: Trade balance under Balance of Payment basis was deficit 109 Million dollar in the Q1/2008.
- Risk factors and Concerns
- The steady increase in oil prices have adversely affected living costs and hinder to the recovery of household spending. Up to date, high oil prices pushed an upward pressures on production cost and living costs through its directs effects on energy and transportation costs and its indirect effects in terms of higher commodity prices, in particular foods and beverages which are necessary consumption commodities with high transportation cost component. These consumption items are affected by both higher transportation costs and the steady increase of rice prices. The burdens on low-incomes group and rural people tends to be higher than that of country average as indicted by the increase in inflation indexes for low incomes group and rural people by 5.6 and 8.3 percent respectively, a faster pace than country average inflation rate. This is explained by bigger share of spending on foods to total expenditure of these groups in oppose to that of country average.
- As trade balance turned to deficit, current account surplus softened. In the first quarter, current account continued to register a surplus with the contribution of a strong expansion of services revenues that compensated the shortfall in trade balance. Nevertheless, current account surplus substantially lower than that of in the first quarter of 2007 and need specifically attention under following conditions
(i) The resurgence of oil import quantity in the presence of high oil prices (partly due to the expectation that oil prices would rise further and raise demand for stock accumulation) resulted in a deficit of oil balance of $ 7.2 billion in the first 4-months. Therefore, it is necessary to continuously promote those measures for energy saving as well as the use of alternative energy.
(ii) The imports for consumer goods increased substantially in the presence of baht strengthening, which is mostly demand for luxuries from high income consumers. Low deposit rate also helped stimulate the demand.
(iii) The sharp increases in imports of steels and gold under expectation that prices will continue to trend up in line with oil prices. This situation is similar to the development in 2005 which finally led to the inclusion these commodities into the list of import management scheme.
(iii) The expansion in imports of capital goods is likely to continue in line with investment recovery. Despite the significance of this import category to the expansion of investment, measures for capital efficiency strengthening in particular among the SMEs must be implemented and promoted.
(iv) (v)The deterioration in terms of trade. Although, agricultural prices has increased sharply, the steady rise in oil prices drove an average import prices to grow at a faster pace than that of exports. Relatively, oil has its larger share in total import than that of agricultural in total exports and thus export volumes must be increased to satisfy the same bills of oil imports. This is the impetus of trade deficit and will dampen national income.
The reduction in current account surplus, without sufficient compensation from capital inflows, it would lead to deficit of balance of payment and put depreciation pressures on the baht currency. However, the stronger economic recovery would provide impetus for capital inflows and thus relief the pressure on balance of payment.
- Consumer confidence index that had increased continually since November 2007 started to decline in April. Consumer and investor sentiments are the important conditions for economic recovery to gain its momentum. However, the sentiments are eroded by various developments including the social and political disparities, the continued rising trends of oil prices and inflation. Therefore, in order to restore confidences, it is necessary for the government to hasten the measures to relieve the negative impacts of high oil prices.
(Continue to).../Economic Condition in..
- Economic stability remained in check but the surge in oil prices continued to put upward inflationary pressures and eroded current account surplus.
- In the first quarter, the unemployment rate remained as low as 1.6 percent, equal to that of in the same period last year. Employment picked up by 1.3 percent in response to the expansion of economic activities
- However, inflation rate accelerated to 5.0 percent in the first quarter from 2.9 percent in the last quarter of 2007 (and accelerated further to 6.2 percent in April which raised an average inflation rate in the first 4-month to 5.3 percent, of which 2.7 percentage points was contributed by the surge in prices of foods and beverages). The broader inflation base resulted in upward pressures on core inflation which continued to pick up the pace from 0.8 percent and 1.1 percent in the third and fourth quarter of 2007 respectively to 1.5 percent in the first quarter of 2008 and 2.1 percent in April.
Contribution to Inflation
2005 2006 2007 4 months 2008
Total 4.5 4.7 2.3 5.3
Food 1.8 1.6 1.5 2.7
Rice 0.0 0.1 0.2 0.2
Meat, poultry and fish 0.4 0.2 0.0 0.6
Vegetables and fruits 0.8 0.8 0.6 0.5
Transportation & Communication 2.2 2.0 0.5 2.0
Public Transport fare 0.6 0.8 0.1 0.1
Oil 2.4 1.6 0.3 2.3
Non-Food 2.7 2.9 0.7 2.5
Source: MOC
- Trade balance recorded a deficit of $ 109 million which was the first deficit in 6 quarters, but service account surplus was higher than normal trend due to the strong expansion in tourism sector in combination with the increase in investment incomes. Current account continued to record a surplus of $ 3,068 million but lower than a surplus of $ 4,689.3 million in the first quarter of 2007.
- The overall energy efficiency continued to improve with the adjustment in energy structure to be more balance.
- The ratio of petroleum used to GDP continued to decline in particular after the lifting of oil subsidy in 2005, which indicated an improvement in energy efficiency. In 2007, the ratio stood at 0.95 declined from 0.9625 in 2006 and reduced to 0.9184 in the first quarter of 2008.
Petroleum Consumption
% YoY ------------ 2007 ------------- 2008
Year H1 Q3 Q4 Q1
Total petroleum 2.7 2.3 3.8 2.4 0.9
Benzene 1.69 2.11 4.39 -1.71 -1.92
Octane(91+95) -6.1 -0.2 -4.7 -18.78 -26.42
Gasohol 37.79 12.91 46.23 77.03 111.95
Diesel 2.13 0.73 5.61 1.81 -0.37
HSD+LSD -1.22 -1.17 1.78 -4.15 -10.23
B5 1360.62 1081.61 1768.31 1391.93 787.29
LPG 14.3 12.59 13.59 18.15 17.59
NGV 117.61 102.92 113.29 139.8 190.52
Source : EPPO
Increased diversification of export markets
(% share) 2538 2540 2545 2549 2550 2551Q1
United Stare 17.8 19.4 19.8 15.0 12.6 11.7
Japan 16.8 15.1 14.6 12.6 11.9 11.3
EU (15) 15.1 15.9 15.0 13.0 12.8 12.8
ASEAN (3) 21.7 21.8 19.9 20.8 21.3 21.6
Middle East 4.5 3.3 3.6 4.4 4.9 4.8
Australia 1.4 1.6 2.4 3.4 3.8 4.0
China 2.9 3.0 5.2 9.0 9.7 9.9
India 0.5 0.5 0.6 1.4 1.7 1.7
Hong Kong 5.2 5.9 5.4 5.5 5.7 6.1
South Korea 1.4 1.8 2.1 2.1 1.9 1.9
Taiwan 2.4 2.7 2.9 2.6 2.2 1.7
South Africa 0.4 0.4 0.5 0.8 0.9 0.9
Others 9.9 8.3 8.0 9.3 10.6 11.6
Source: BOT
Recent indicators, in particular in 2006, showed that the structure of energy consumption become more balance. Over the past 2-3 years, consumption behaviors have been shifted towards alternatives energy, in particular, gasohol, bio-diesel and natural gas and resulted in the reduction of energy costs.
- Consumption of alternative energy continued to increase. Gasohol and bio-diesel consumption rose sharply (from their low base level) by 111.9 percent and 787.3 percent respectively. Similarly, natural gas consumption expanded by 190.5 percent in contrast with the continual reduction in consumption of diesel, fuel oil and regular gasoline of 0.4, 15.4 and 4.2 percent respectively. This reflected the shift in consumer behaviors towards low-cost alternative energy. In addition, energy employed in production becomes more balance. For example transportation and electricity sectors that were highly dependent on gasoline, diesel, and fuel oil have increasingly employed natural gas in their production. In this respect, and in order to strengthen energy efficiency, the government is required to manage energy structure to be free from distortion and promote appropriate use of energy types among different user groups. The sharp increase in the use LPG in transportation would make a good example of further analysis.
- Labor productivity increased by around 4 percent in the first quarter; roughly estimated by the difference between the economic growth and employment growth.
- In 2008, export continued to expand at a satisfactory rate due to the diversification in the structure of export markets. The shift in market structure reduced sensitivity of the Thai economy to fluctuation in the global and industrialized economies.
- The market structure has increasingly diversified with a higher dependency on new markets in contrast with the decline in a share of Japanese and U.S markets.
- Emerging economies become important export markets for the Thai economies, in particular the fast growing China, Eastern Europe and Asia. These economies, particularly Asia, are now the main growth engine for the World economy and their share in global GDP has increased steadily.
- Thailand remained competitive in electronics and mobile industries and parts due to the production base expansion of multi-national corporations and the shorter product life cycle of electronics products resulting from technological advancement that has encouraged a faster product development. The development of products with high digital contents also beneficial. For automobile, exports to Australia have increased following FTA arrangement while exports to the Middle East edged up due to higher petroleum revenues.
- Thailand has been beneficial from the sharp increase in prices of major agricultural commodities following the increase in oil prices that resulted in a heated future markets of commodities. This is partly attributable to a strong increase in demand for energy crops and the reduction of wheat in the world market as a result of supply disruption, as well as, the restriction on rice exports in Vietnam.
Net trade balance
Billions US$ 2548 2549 --------------- 2550 --------------- ---2551---
ทั้งปี Q1 Q2 Q3 Q4 Q1 Apr.*
Trade balance (Custom basis) -7.3 0.9 12.5 3.5 1.4 2.9 4.6 -1.2 -1.8
- Oil -17.5 -20.1 -20.1 -4.3 -5.1 -5.4 -5.4 -6.8 -2.4
- Non-oil 10.1 21.1 32.6 7.7 6.5 8.3 10.0 5.6 0.6
Source: BOT
* data from Ministry of Commerce
Note: Trade balance under Balance of Payment basis was deficit 109 Million dollar in the Q1/2008.
- Risk factors and Concerns
- The steady increase in oil prices have adversely affected living costs and hinder to the recovery of household spending. Up to date, high oil prices pushed an upward pressures on production cost and living costs through its directs effects on energy and transportation costs and its indirect effects in terms of higher commodity prices, in particular foods and beverages which are necessary consumption commodities with high transportation cost component. These consumption items are affected by both higher transportation costs and the steady increase of rice prices. The burdens on low-incomes group and rural people tends to be higher than that of country average as indicted by the increase in inflation indexes for low incomes group and rural people by 5.6 and 8.3 percent respectively, a faster pace than country average inflation rate. This is explained by bigger share of spending on foods to total expenditure of these groups in oppose to that of country average.
- As trade balance turned to deficit, current account surplus softened. In the first quarter, current account continued to register a surplus with the contribution of a strong expansion of services revenues that compensated the shortfall in trade balance. Nevertheless, current account surplus substantially lower than that of in the first quarter of 2007 and need specifically attention under following conditions
(i) The resurgence of oil import quantity in the presence of high oil prices (partly due to the expectation that oil prices would rise further and raise demand for stock accumulation) resulted in a deficit of oil balance of $ 7.2 billion in the first 4-months. Therefore, it is necessary to continuously promote those measures for energy saving as well as the use of alternative energy.
(ii) The imports for consumer goods increased substantially in the presence of baht strengthening, which is mostly demand for luxuries from high income consumers. Low deposit rate also helped stimulate the demand.
(iii) The sharp increases in imports of steels and gold under expectation that prices will continue to trend up in line with oil prices. This situation is similar to the development in 2005 which finally led to the inclusion these commodities into the list of import management scheme.
(iii) The expansion in imports of capital goods is likely to continue in line with investment recovery. Despite the significance of this import category to the expansion of investment, measures for capital efficiency strengthening in particular among the SMEs must be implemented and promoted.
(iv) (v)The deterioration in terms of trade. Although, agricultural prices has increased sharply, the steady rise in oil prices drove an average import prices to grow at a faster pace than that of exports. Relatively, oil has its larger share in total import than that of agricultural in total exports and thus export volumes must be increased to satisfy the same bills of oil imports. This is the impetus of trade deficit and will dampen national income.
The reduction in current account surplus, without sufficient compensation from capital inflows, it would lead to deficit of balance of payment and put depreciation pressures on the baht currency. However, the stronger economic recovery would provide impetus for capital inflows and thus relief the pressure on balance of payment.
- Consumer confidence index that had increased continually since November 2007 started to decline in April. Consumer and investor sentiments are the important conditions for economic recovery to gain its momentum. However, the sentiments are eroded by various developments including the social and political disparities, the continued rising trends of oil prices and inflation. Therefore, in order to restore confidences, it is necessary for the government to hasten the measures to relieve the negative impacts of high oil prices.
(Continue to).../Economic Condition in..