- The Thai economy in the second quarter of 2008 expanded by 5.3 percent, softened from 6.1
percent in the first quarter as a result of weakening domestic demand. In the first half of 2008, the
economy grew by 5.7 percent. Export volume performed better than earlier expected and provided a strong
impetus to growth. Nevertheless, domestic demand showed a slowdown and remained vulnerable. In real term,
government consumption and public investment plunged, while private spending and investment moderated.
- Overall economic stability remained positive, however inflationary pressure continued to elevate
and current account recorded a deficit. In the second quarter, headline inflation was 7.5 percent and hit
9.2 percent in July. Current account registered a deficit of 308 million USD compared to a surplus of 3,068
million USD in the first quarter. This was due to rising oil import prices and higher spending of Thais on
traveling abroad as well as the high repatriation of investment income by foreign investors. Unemployment
rate remained low at 1.4 percent.
- Nominal interest rates, on baht deposit and loan, adjusted upward. However, higher inflation has
resulted in declining real interest rate and remained negative. Credits accelerated, while deposits dropped,
resulting in continued lower liquidity in the financial institutions. However, overall liquidity still
remained sizable and ample. Nominal exchange rate of Thai baht vis-a-vis USD depreciated steadily since mid
April, similar to the trend of nominal effective exchange rate. SET index on average dropped and remained
periodically volatile following foreign capital movement amid global financial turbulence due to the Sub-
prime crisis and oil and commodity prices fluctuation.
- Fiscal balance recorded surplus on both budget and cash balance basis after experiencing
deficits during the previous three quarters. This resulted from higher revenues but slight increase in
expenditures. Public debts to GDP at the end of June 2008 were 35.8 percent, slightly down from 37.97 at the
end of 2007.
- Supporting factors associated with the economic growth in the second half of the year include
(i) Tax stimulus policies (ii) Budget disbursement acceleration during the last quarter of fiscal year 2008
and the first quarter of fiscal year 2009. (iii) Rising farm income due to increase in production despite a
slowdown in agricultural products’ prices compared to the first half. (iv) Low unemployment rate (vi) Low
real interest rates and (vii) Continued expansion of exports though at a lower pace than in H1, provided
that economies of major trading partners are likely to register decent growth.
- In 2008, the Thai economy is expected to expand by 5.2-5.7 percent with a downward trend in the
latter half due to export deceleration compared to the first half. Moreover, private expenditure and
investment are not expected to fully recover under constraints of high oil price and high inflation despite
subsided trend. Consumer and Business confidences also remained weak due to high cost of production, high
living expenses and political uncertainties.
- Key risk factors which required well-managed measures include (i) Impacts from the global
downturn on exports (ii) Narrowing current account surpluses. It is likely that current account will be in
surplus of 2.6 percent to GDP. (iii) Impacts from higher production cost and cost of living. (iv) Energy
efficiency which required to be constantly promoted. (v) Agricultural products’ price stabilization during
the harvest season and (vi) Acceleration on public infrastructure projects.
1. Economic performance in Q2
1.1 The Thai economy expanded by 5.3 percent in the second quarter, slightly slowed down from 6.1
percent in the first quarter. The slower pace of economic expansion was attributable to the impacts of
rising oil prices, higher raw material and intermediate input costs which resulted in accelerated inflation
acceleration. This upsurge took a toll on domestic spending. However, the stronger-than-expected export
expansion, both in agricultural and manufacturing commodities, helped offset the domestic-led slowdown and
thereby supported a satisfactory rate of economic expansion. Overall, the Thai economy expanded by 5.7
percent in the first half of 2008.
Key Highlight
(1) A satisfactory rate of economic expansion in the second quarter was driven by the stronger
export expansion than previously expected, both in agricultural and manufacturing commodities. Q2 also
recorded strong growth in agricultural sector. Meanwhile, the production of manufacturing, hotel &
restaurant, and financial sector continued to expand at a favorable rate.
- In the second quarter, export volume increased by 9.7 percent, accelerating from 6.9 percent in
the first quarter. Services incomes continued to expand favorably and export prices in dollar terms
continued to increase as a resulted of rising world market price of agricultural commodities (in particular,
rice, corn, tapioca and rubber). Together with favorable manufacturing export expansion, both in terms of
price and quantity, the total value of exports increased at a robust rate of 26.3 percent, accelerated from
22.9 percent in the first quarter (July figures showed that export values expanded by 43.9 percent and
resulted in 27.4 percent expansion of export values in the first 7 months of 2008)
- Export commodities posting a strong and accelerated rate of expansion included rice (export
quantity and prices rose by 35.3 and 89.2 percent respectively), tapioca products (export quantity continued
to decline by 25.5 percent, but price increased by 20 percent), rubber (quantity rose by 2.9 percent and
price increased by 26.8 percent) and foods (quantity and price increased by 20.1 and 13.9 percent
respectively)
The export values of electronic products, vehicles and parts showed further signs of slowdown.
Export values of electronics products rose by 7.4 percent (compare to 5.6 percent in the first quarter and
12.8 percent in 2007). Total exports of electrical appliances increased by 12.3 percent (almost at the same
pace of 12.2 percent in the first quarter but slightly slowed down from 15.0 percent in 2007) which was
attributable to the slowdown in the exports of air-conditioners and refrigerators & parts). Export values of
vehicles & parts thereof increased by 16.3 percent, decelerated from 21.5 percent expansion in the first
quarter. However, other commodities such as plastic products, jewelry, soap and cosmetics revealed a
satisfactory rate of export expansion. Robust export expansion in 2008 was driven by the strong increases
of export values to new markets and intraregional markets while the share of exports to main markets
including the US and Japan market continued to decline. In the first half of 2008, export values to new
markets increased robustly by 31.1 percent (export values to China, Middle East and Eastern Europe increased
by 27.4, 27.8 and 31.8 percent respectively) while export to ASEAN(5) expanded by 32.9 percent and export to
EU rose by 10 percent (decelerated from 15 percent in 2007). Nevertheless, driven by higher export prices of
foods and agricultural commodities, exports to the U.S. and Japan increased at a faster pace than last year
(exports to the U.S. and Japan in the first half of 2008 increased by 6.7 and 13.0 percent respectively
compare to -1.3 and 9.7 percent in 2007).
Exports classified by markets (%)
1995 1997 2002 2006 2007 ------ 2008 -------
Q1 Q2 H1
USA 17.8 19.4 19.8 15.0 12.6 11.7 11.0 11.3
Japan 16.8 15.1 14.6 12.6 11.8 11.3 11.4 11.3
EU 15 15.1 15.9 15.0 13.0 12.8 12.8 11.6 12.1
ASEAN (9) 21.7 21.8 19.9 20.8 21.4 21.6 24.8 23.3
Middle East 4.5 3.3 3.6 4.4 4.9 4.8 5.1 5.0
Australia 1.4 1.6 2.4 3.4 3.8 4.0 4.0 4.0
China 2.9 3.0 5.2 9.0 9.7 9.9 9.3 9.6
India 0.5 0.5 0.6 1.4 1.8 1.7 1.9 1.8
Hong Kong 5.2 5.9 5.4 5.5 5.6 6.1 5.6 5.9
South Korea 1.4 1.8 2.1 2.1 1.9 1.9 1.7 1.8
Taiwan 2.4 2.7 2.9 2.6 2.2 1.7 1.6 1.7
South Africa 0.4 0.4 0.5 0.8 0.9 0.9 1.0 0.9
Others 9.9 8.3 8.0 9.3 10.4 11.6 11.0 11.3
Sources: BOT
- The expansion of agricultural production accelerated to 6.5 percent, compare to 3.5 percent in
the first quarter and 3.9 percent in 2007. For major crops, rice, sugarcane, palm and rubber showed stronger
rate of production expansion while prices of rice, tapioca, corn and rubber continued to rise. Export
quantity of rice increased by 61.43 percent and 56.1 percent in the second quarter and the first half of
2008 respectively.
- Manufacturing production increased by 8.0 percent, slightly decelerated from 9.9 percent in the
first quarter. This was attributable to the slowdown in domestic spending and weakening export performances
of major manufacturing commodities such as electronic products, electrical appliances, vehicles and parts.
- The number of foreign tourists increased by 15 percent, accelerated from 13.3 percent in the
first quarter, and contributed to the expansion of hotel & restaurant sector of 5.0 percent. However,
compare to 8.3 percent in the first quarter, hotel & restaurant sector showed a weaker performance due to
rising oil prices and higher travel costs that eroded tourists’ real purchasing power. In addition, Thai
baht appreciation encouraged outbound tourism especially during the long holidays of Song kran festival.
- Financial sector expanded by 8.9 percent, supported by credit expansion, higher interest rate
spread receipts and higher returns from investment in debt markets. Nervertheless, compare to an expansion
rate (from a low base in 2007) of 9.6 percent in the first quarter, financial sector slowed down slightly.
(2) Constraints and concerns: weakening domestic demand
- Household expenditures expanded by 2.4 percent, almost at the same pace of 2.6 percent in the
first quarter. However, its recovering remained at a slower pace than previously expected as higher living
costs and weakening consumer confidences took a toll on household expenditures. In the second quarter,
household consumption spending in nominal terms increased by 10.2 percent, accelerated from 8.7 percent in
the first quarter. Nevertheless, driven by the increases in prices of agricultural commodities, consumption
expenditures of rural households showed a sign of recovery as seen by the increase of motorcycle sale of
16.2 percent
- Private investment obviously softened with its rate of expansion of 4.3 percent, compare to 6.5
percent in the first quarter. The hindrances to investment expansion included rising costs of production,
domestic demand deceleration, expectation on the slowdown of the world economy, and weakening business
sentiments.
- Government consumption and public investment in real terms declined by 2.4 percent and 5.2
percent respectively. Although government budget disbursements met the target in the quarter of April-June,
with higher disbursement values than that of the same period last year, the increase in prices and debt
repayment eroded the real government spending both on investment and consumption. Public investment spending
on construction declined as construction cost increased to higher level than it was previously estimated at
the stage of project and budget preparations. In the second quarter, prices of construction materials
substantially increased by 24.6, compare to 13.9 percent in the first quarter, in particular price of steel
and iron, cements and woods. This upsurge has delayed the procurement process and resulted in adjustment of
project costs. In the second quarter, the number of construction projects of central government, state
enterprises and local administration declined by 8.0 percent.
- Disbursement rate of government budget was slightly higher than its target (24.6 percent compare
to the target of 23.5 percent). In the second quarter (April — June 2008), the disbursement of government
budget registered at 407,569.8 million baht (compare to that of 400,256.5 million baht in the same period
last year) of which 321,033.7 million baht was current budget disbursement (increased from 313,614.9 million
baht) and 86,536.2 million baht was investment budget disbursement. The disbursement of carry-over budget
amounted to 17,576.7 million baht (higher than 16,147.2 million baht in the same period last year). Overall,
the budget disbursement met the target and the disbursement rate for the whole year is projected at 94
percent of planned budget. Disbursement of public enterprises including Petroleum Authority of Thailand
during April-June registered 63,916.34 million baht (increased from 44,529.07 million baht in the same
period last year).
(3) Over all, economic stability remained in check in the second quarter but inflationary
pressures have increased heightened. Together with current account deficit and the decline in balance of
payment surplus, this situation resulted in the depreciation of Thai baht value.
- Unemployment rate in the second quarter was at 1.4 percent, lower than that of 1.6 percent in
same period last year and 1.7 percent in the first quarter of 2008. Meanwhile, employment increased by 2.8
percent.
- However, in response to the surge in oil and foods prices, inflationary pressures have increased
and drove headline inflation from 5.0 percent in the first quarter to 7.5 percent in the second quarter
(headline inflation in July was at 9.2 percent and an average rate in the first 7 months was at 6.6
percent). In addition, the surge in oil prices and prices of grain and rice, vegetables, and eggs resulted
in higher prices of food products and higher cost of travel as well as transportation costs. This hike has
put an upward pressure on core inflation to accelerate from 1.5 percent in the first quarter to 2.8 percent
in the second quarter (core inflation in July was at 3.7 percent and its average rate in the first 7 months
of 2008 was at 2.4 percent).
- Current account registered a small deficit while trade balance reversed from deficit to surplus.
Trade balance reversed from a deficit of US$ 108.6 million in the first quarter to a surplus of US$ 425
million and helped maintain current account surplus in the first half of the year. Oil balance registered a
deficit of US$ 6.90 billion but it was compensated by surplus of trade in other commodities. Service balance
registered a deficit of US$ 700 million as a result investment earnings transfer and the increase in the
number of outbound Thai tourists during a long holiday season. Therefore, current account balance registered
a deficit of US$ 308 million.
Together with a deficit of US$ 1.327 billion in capital account (which was a result of capital
outflow to compensate financial losses from sub-prime crisis), balance of payment in the second quarter
registered a deficit of US$ 2.5 billion, compare to a surplus of US$ 18.5 billion in the first quarter.
Lower balance of payment, therefore, put downward pressure on the Thai baht value, which depreciated from an
average of 31.46 baht per US$ in March and 31.59 baht per US$ in April to 32.11 baht per US$, 32.20 baht per
US$ and 34.026 baht per US$ in May, June and on August 21th respectively.
- Oil and energy prices strongly increased and raise import values of oil and lubricants by 50.24
percent as oppose to the decline in its import quantity of 1.2 percent. Oil balance continued to register a
deficit which was at US$ 6.9 billion in the second quarter and US$ 13.7 billion in the first half of 2008.
Economic Condition in the second quarter of 2008 by sectors
- Expansion in household expenditure was stable, growing by 2.4 percent in the second quarter,
compared with 2.6 percent in the previous quarter. Supporting factors include (i) Buoyant farm income
increasing by 53.2 percent as a result of higher volume and prices of agricultural products (ii) Raise in
minimum wage and government officials’ salary since 1 January 2008, and tax measures to enhance income under
tax policies scheme for economic stimulus. This also included an upward adjustment in government salaries to
support living cost during the last quarter of last year. However, the dampening factor was the mounted
inflationary pressure that averaged to 7.5 percent in this quarter. Consumer confidence also declined as a
result of concerns over future income, political uncertainties and the southern unrest which hindered the
full-fledged recovery of household consumption. In this regard, spending on durable goods remained strong,
expanding robustly by 10.6 percent, comparable to that in the first quarter. Key items which expanded well
included passenger cars, motorcycles, household electrical appliances (namely washing machine, rice cooker,
electric fan and refrigerator). Meanwhile, spending on semi-durable and foods increased by only 3.3 and 1.9
percent respectively, lower than those in the previous quarter due to soaring inflation, mainly in food
items. Expenditure on services expanded at about the same rate as that in the previous quarter.
All in all, in the first half of 2008, private expenditure grew by 2.5 percent, attributable to
the expansion of expenditures on durable goods, semi-durable goods and foods of 10.3, 3.5 and 2.6 percent
respectively. On the contrary, expenditure on services declined by 0.9 percent.
- Private investment: slowed down amid mounting production cost and weakened business sentiment.
Private investment grew by 4.3 percent in the second quarter, lower than 6.5 percent in the first quarter.
Cost pressure rose steadily fueled by higher prices of oil, raw materials, construction materials, and labor
wage. Political uncertainties also affected investors’ confidence. Nevertheless, there were several factors
fundamentally supporting private investment including low real interest rate and nearly production capacity
utilization in various industries such as paper, petrochemical product, chemical product, hard disk drive.
In addition, measures for supporting investment of community enterprises and small and medium-sized
enterprises (SME), tax measures for stimulating investment and measures for enhancing competitiveness are
also important drivers for investment (A).
-------- Note: (A) Measures on 4th March 2008, (1) Tax measures for supporting local economy and small and
medium-sized enterprises comprising of personal income tax exemptions for individual and small and medium-
sized enterprises whose earning less than 1.2 million baht per year, corporate tax exemption for 150,000
baht of initial profit (formerly pay 15 percent) for companies whose have registered capital not less than 5
million baht. (SMEs would be able to reduce cost by 22,500 baht.) (2) Tax measures for stimulating
investment and enhancing
(Continue to).../Production Capacity..
percent in the first quarter as a result of weakening domestic demand. In the first half of 2008, the
economy grew by 5.7 percent. Export volume performed better than earlier expected and provided a strong
impetus to growth. Nevertheless, domestic demand showed a slowdown and remained vulnerable. In real term,
government consumption and public investment plunged, while private spending and investment moderated.
- Overall economic stability remained positive, however inflationary pressure continued to elevate
and current account recorded a deficit. In the second quarter, headline inflation was 7.5 percent and hit
9.2 percent in July. Current account registered a deficit of 308 million USD compared to a surplus of 3,068
million USD in the first quarter. This was due to rising oil import prices and higher spending of Thais on
traveling abroad as well as the high repatriation of investment income by foreign investors. Unemployment
rate remained low at 1.4 percent.
- Nominal interest rates, on baht deposit and loan, adjusted upward. However, higher inflation has
resulted in declining real interest rate and remained negative. Credits accelerated, while deposits dropped,
resulting in continued lower liquidity in the financial institutions. However, overall liquidity still
remained sizable and ample. Nominal exchange rate of Thai baht vis-a-vis USD depreciated steadily since mid
April, similar to the trend of nominal effective exchange rate. SET index on average dropped and remained
periodically volatile following foreign capital movement amid global financial turbulence due to the Sub-
prime crisis and oil and commodity prices fluctuation.
- Fiscal balance recorded surplus on both budget and cash balance basis after experiencing
deficits during the previous three quarters. This resulted from higher revenues but slight increase in
expenditures. Public debts to GDP at the end of June 2008 were 35.8 percent, slightly down from 37.97 at the
end of 2007.
- Supporting factors associated with the economic growth in the second half of the year include
(i) Tax stimulus policies (ii) Budget disbursement acceleration during the last quarter of fiscal year 2008
and the first quarter of fiscal year 2009. (iii) Rising farm income due to increase in production despite a
slowdown in agricultural products’ prices compared to the first half. (iv) Low unemployment rate (vi) Low
real interest rates and (vii) Continued expansion of exports though at a lower pace than in H1, provided
that economies of major trading partners are likely to register decent growth.
- In 2008, the Thai economy is expected to expand by 5.2-5.7 percent with a downward trend in the
latter half due to export deceleration compared to the first half. Moreover, private expenditure and
investment are not expected to fully recover under constraints of high oil price and high inflation despite
subsided trend. Consumer and Business confidences also remained weak due to high cost of production, high
living expenses and political uncertainties.
- Key risk factors which required well-managed measures include (i) Impacts from the global
downturn on exports (ii) Narrowing current account surpluses. It is likely that current account will be in
surplus of 2.6 percent to GDP. (iii) Impacts from higher production cost and cost of living. (iv) Energy
efficiency which required to be constantly promoted. (v) Agricultural products’ price stabilization during
the harvest season and (vi) Acceleration on public infrastructure projects.
1. Economic performance in Q2
1.1 The Thai economy expanded by 5.3 percent in the second quarter, slightly slowed down from 6.1
percent in the first quarter. The slower pace of economic expansion was attributable to the impacts of
rising oil prices, higher raw material and intermediate input costs which resulted in accelerated inflation
acceleration. This upsurge took a toll on domestic spending. However, the stronger-than-expected export
expansion, both in agricultural and manufacturing commodities, helped offset the domestic-led slowdown and
thereby supported a satisfactory rate of economic expansion. Overall, the Thai economy expanded by 5.7
percent in the first half of 2008.
Key Highlight
(1) A satisfactory rate of economic expansion in the second quarter was driven by the stronger
export expansion than previously expected, both in agricultural and manufacturing commodities. Q2 also
recorded strong growth in agricultural sector. Meanwhile, the production of manufacturing, hotel &
restaurant, and financial sector continued to expand at a favorable rate.
- In the second quarter, export volume increased by 9.7 percent, accelerating from 6.9 percent in
the first quarter. Services incomes continued to expand favorably and export prices in dollar terms
continued to increase as a resulted of rising world market price of agricultural commodities (in particular,
rice, corn, tapioca and rubber). Together with favorable manufacturing export expansion, both in terms of
price and quantity, the total value of exports increased at a robust rate of 26.3 percent, accelerated from
22.9 percent in the first quarter (July figures showed that export values expanded by 43.9 percent and
resulted in 27.4 percent expansion of export values in the first 7 months of 2008)
- Export commodities posting a strong and accelerated rate of expansion included rice (export
quantity and prices rose by 35.3 and 89.2 percent respectively), tapioca products (export quantity continued
to decline by 25.5 percent, but price increased by 20 percent), rubber (quantity rose by 2.9 percent and
price increased by 26.8 percent) and foods (quantity and price increased by 20.1 and 13.9 percent
respectively)
The export values of electronic products, vehicles and parts showed further signs of slowdown.
Export values of electronics products rose by 7.4 percent (compare to 5.6 percent in the first quarter and
12.8 percent in 2007). Total exports of electrical appliances increased by 12.3 percent (almost at the same
pace of 12.2 percent in the first quarter but slightly slowed down from 15.0 percent in 2007) which was
attributable to the slowdown in the exports of air-conditioners and refrigerators & parts). Export values of
vehicles & parts thereof increased by 16.3 percent, decelerated from 21.5 percent expansion in the first
quarter. However, other commodities such as plastic products, jewelry, soap and cosmetics revealed a
satisfactory rate of export expansion. Robust export expansion in 2008 was driven by the strong increases
of export values to new markets and intraregional markets while the share of exports to main markets
including the US and Japan market continued to decline. In the first half of 2008, export values to new
markets increased robustly by 31.1 percent (export values to China, Middle East and Eastern Europe increased
by 27.4, 27.8 and 31.8 percent respectively) while export to ASEAN(5) expanded by 32.9 percent and export to
EU rose by 10 percent (decelerated from 15 percent in 2007). Nevertheless, driven by higher export prices of
foods and agricultural commodities, exports to the U.S. and Japan increased at a faster pace than last year
(exports to the U.S. and Japan in the first half of 2008 increased by 6.7 and 13.0 percent respectively
compare to -1.3 and 9.7 percent in 2007).
Exports classified by markets (%)
1995 1997 2002 2006 2007 ------ 2008 -------
Q1 Q2 H1
USA 17.8 19.4 19.8 15.0 12.6 11.7 11.0 11.3
Japan 16.8 15.1 14.6 12.6 11.8 11.3 11.4 11.3
EU 15 15.1 15.9 15.0 13.0 12.8 12.8 11.6 12.1
ASEAN (9) 21.7 21.8 19.9 20.8 21.4 21.6 24.8 23.3
Middle East 4.5 3.3 3.6 4.4 4.9 4.8 5.1 5.0
Australia 1.4 1.6 2.4 3.4 3.8 4.0 4.0 4.0
China 2.9 3.0 5.2 9.0 9.7 9.9 9.3 9.6
India 0.5 0.5 0.6 1.4 1.8 1.7 1.9 1.8
Hong Kong 5.2 5.9 5.4 5.5 5.6 6.1 5.6 5.9
South Korea 1.4 1.8 2.1 2.1 1.9 1.9 1.7 1.8
Taiwan 2.4 2.7 2.9 2.6 2.2 1.7 1.6 1.7
South Africa 0.4 0.4 0.5 0.8 0.9 0.9 1.0 0.9
Others 9.9 8.3 8.0 9.3 10.4 11.6 11.0 11.3
Sources: BOT
- The expansion of agricultural production accelerated to 6.5 percent, compare to 3.5 percent in
the first quarter and 3.9 percent in 2007. For major crops, rice, sugarcane, palm and rubber showed stronger
rate of production expansion while prices of rice, tapioca, corn and rubber continued to rise. Export
quantity of rice increased by 61.43 percent and 56.1 percent in the second quarter and the first half of
2008 respectively.
- Manufacturing production increased by 8.0 percent, slightly decelerated from 9.9 percent in the
first quarter. This was attributable to the slowdown in domestic spending and weakening export performances
of major manufacturing commodities such as electronic products, electrical appliances, vehicles and parts.
- The number of foreign tourists increased by 15 percent, accelerated from 13.3 percent in the
first quarter, and contributed to the expansion of hotel & restaurant sector of 5.0 percent. However,
compare to 8.3 percent in the first quarter, hotel & restaurant sector showed a weaker performance due to
rising oil prices and higher travel costs that eroded tourists’ real purchasing power. In addition, Thai
baht appreciation encouraged outbound tourism especially during the long holidays of Song kran festival.
- Financial sector expanded by 8.9 percent, supported by credit expansion, higher interest rate
spread receipts and higher returns from investment in debt markets. Nervertheless, compare to an expansion
rate (from a low base in 2007) of 9.6 percent in the first quarter, financial sector slowed down slightly.
(2) Constraints and concerns: weakening domestic demand
- Household expenditures expanded by 2.4 percent, almost at the same pace of 2.6 percent in the
first quarter. However, its recovering remained at a slower pace than previously expected as higher living
costs and weakening consumer confidences took a toll on household expenditures. In the second quarter,
household consumption spending in nominal terms increased by 10.2 percent, accelerated from 8.7 percent in
the first quarter. Nevertheless, driven by the increases in prices of agricultural commodities, consumption
expenditures of rural households showed a sign of recovery as seen by the increase of motorcycle sale of
16.2 percent
- Private investment obviously softened with its rate of expansion of 4.3 percent, compare to 6.5
percent in the first quarter. The hindrances to investment expansion included rising costs of production,
domestic demand deceleration, expectation on the slowdown of the world economy, and weakening business
sentiments.
- Government consumption and public investment in real terms declined by 2.4 percent and 5.2
percent respectively. Although government budget disbursements met the target in the quarter of April-June,
with higher disbursement values than that of the same period last year, the increase in prices and debt
repayment eroded the real government spending both on investment and consumption. Public investment spending
on construction declined as construction cost increased to higher level than it was previously estimated at
the stage of project and budget preparations. In the second quarter, prices of construction materials
substantially increased by 24.6, compare to 13.9 percent in the first quarter, in particular price of steel
and iron, cements and woods. This upsurge has delayed the procurement process and resulted in adjustment of
project costs. In the second quarter, the number of construction projects of central government, state
enterprises and local administration declined by 8.0 percent.
- Disbursement rate of government budget was slightly higher than its target (24.6 percent compare
to the target of 23.5 percent). In the second quarter (April — June 2008), the disbursement of government
budget registered at 407,569.8 million baht (compare to that of 400,256.5 million baht in the same period
last year) of which 321,033.7 million baht was current budget disbursement (increased from 313,614.9 million
baht) and 86,536.2 million baht was investment budget disbursement. The disbursement of carry-over budget
amounted to 17,576.7 million baht (higher than 16,147.2 million baht in the same period last year). Overall,
the budget disbursement met the target and the disbursement rate for the whole year is projected at 94
percent of planned budget. Disbursement of public enterprises including Petroleum Authority of Thailand
during April-June registered 63,916.34 million baht (increased from 44,529.07 million baht in the same
period last year).
(3) Over all, economic stability remained in check in the second quarter but inflationary
pressures have increased heightened. Together with current account deficit and the decline in balance of
payment surplus, this situation resulted in the depreciation of Thai baht value.
- Unemployment rate in the second quarter was at 1.4 percent, lower than that of 1.6 percent in
same period last year and 1.7 percent in the first quarter of 2008. Meanwhile, employment increased by 2.8
percent.
- However, in response to the surge in oil and foods prices, inflationary pressures have increased
and drove headline inflation from 5.0 percent in the first quarter to 7.5 percent in the second quarter
(headline inflation in July was at 9.2 percent and an average rate in the first 7 months was at 6.6
percent). In addition, the surge in oil prices and prices of grain and rice, vegetables, and eggs resulted
in higher prices of food products and higher cost of travel as well as transportation costs. This hike has
put an upward pressure on core inflation to accelerate from 1.5 percent in the first quarter to 2.8 percent
in the second quarter (core inflation in July was at 3.7 percent and its average rate in the first 7 months
of 2008 was at 2.4 percent).
- Current account registered a small deficit while trade balance reversed from deficit to surplus.
Trade balance reversed from a deficit of US$ 108.6 million in the first quarter to a surplus of US$ 425
million and helped maintain current account surplus in the first half of the year. Oil balance registered a
deficit of US$ 6.90 billion but it was compensated by surplus of trade in other commodities. Service balance
registered a deficit of US$ 700 million as a result investment earnings transfer and the increase in the
number of outbound Thai tourists during a long holiday season. Therefore, current account balance registered
a deficit of US$ 308 million.
Together with a deficit of US$ 1.327 billion in capital account (which was a result of capital
outflow to compensate financial losses from sub-prime crisis), balance of payment in the second quarter
registered a deficit of US$ 2.5 billion, compare to a surplus of US$ 18.5 billion in the first quarter.
Lower balance of payment, therefore, put downward pressure on the Thai baht value, which depreciated from an
average of 31.46 baht per US$ in March and 31.59 baht per US$ in April to 32.11 baht per US$, 32.20 baht per
US$ and 34.026 baht per US$ in May, June and on August 21th respectively.
- Oil and energy prices strongly increased and raise import values of oil and lubricants by 50.24
percent as oppose to the decline in its import quantity of 1.2 percent. Oil balance continued to register a
deficit which was at US$ 6.9 billion in the second quarter and US$ 13.7 billion in the first half of 2008.
Economic Condition in the second quarter of 2008 by sectors
- Expansion in household expenditure was stable, growing by 2.4 percent in the second quarter,
compared with 2.6 percent in the previous quarter. Supporting factors include (i) Buoyant farm income
increasing by 53.2 percent as a result of higher volume and prices of agricultural products (ii) Raise in
minimum wage and government officials’ salary since 1 January 2008, and tax measures to enhance income under
tax policies scheme for economic stimulus. This also included an upward adjustment in government salaries to
support living cost during the last quarter of last year. However, the dampening factor was the mounted
inflationary pressure that averaged to 7.5 percent in this quarter. Consumer confidence also declined as a
result of concerns over future income, political uncertainties and the southern unrest which hindered the
full-fledged recovery of household consumption. In this regard, spending on durable goods remained strong,
expanding robustly by 10.6 percent, comparable to that in the first quarter. Key items which expanded well
included passenger cars, motorcycles, household electrical appliances (namely washing machine, rice cooker,
electric fan and refrigerator). Meanwhile, spending on semi-durable and foods increased by only 3.3 and 1.9
percent respectively, lower than those in the previous quarter due to soaring inflation, mainly in food
items. Expenditure on services expanded at about the same rate as that in the previous quarter.
All in all, in the first half of 2008, private expenditure grew by 2.5 percent, attributable to
the expansion of expenditures on durable goods, semi-durable goods and foods of 10.3, 3.5 and 2.6 percent
respectively. On the contrary, expenditure on services declined by 0.9 percent.
- Private investment: slowed down amid mounting production cost and weakened business sentiment.
Private investment grew by 4.3 percent in the second quarter, lower than 6.5 percent in the first quarter.
Cost pressure rose steadily fueled by higher prices of oil, raw materials, construction materials, and labor
wage. Political uncertainties also affected investors’ confidence. Nevertheless, there were several factors
fundamentally supporting private investment including low real interest rate and nearly production capacity
utilization in various industries such as paper, petrochemical product, chemical product, hard disk drive.
In addition, measures for supporting investment of community enterprises and small and medium-sized
enterprises (SME), tax measures for stimulating investment and measures for enhancing competitiveness are
also important drivers for investment (A).
-------- Note: (A) Measures on 4th March 2008, (1) Tax measures for supporting local economy and small and
medium-sized enterprises comprising of personal income tax exemptions for individual and small and medium-
sized enterprises whose earning less than 1.2 million baht per year, corporate tax exemption for 150,000
baht of initial profit (formerly pay 15 percent) for companies whose have registered capital not less than 5
million baht. (SMEs would be able to reduce cost by 22,500 baht.) (2) Tax measures for stimulating
investment and enhancing
(Continue to).../Production Capacity..