- Listed companies earning reported higher growth. Listed companies on SET showed net
profit of 161.6 billion baht, increased by 67.7 percent from the same period last year. Most profitable sectors were energy, agriculture and industrial sectors. Thai commercial bank also reported 349.2 percent growth in net profit, which resulted from low net profit in the second quarter last year. (which was caused by burden on higher provision for loan loss under the new rate. Capital adequacy ratio (CAR) in the
second quarter had increased to 15.2 percent from 14.7 percent in the first quarter.
- On average in the second quarter Thai baht appreciated in nominal term as compared to
the US dollar but effective exchange rate weakened. Average exchange rate in the second quarter was at 32.28 baht per US dollar, appreciated slightly by 0.32 and 6.81 percent from the first quarter and the same
period of last year respectively. During May through to June, Thai baht had significantly depreciated due to 3 major factors: 1) the US. economic indicators showed that the US. had avoided recession in the first half of the year. Moreover, its expansion was higher than expectation, whereas other countries, especially Japan, Euro-zone and United Kingdom, faced adverse effect from oil price and slow-down of export than market
expectation. Therefore, some investors considered the US. as safe-haven as compared with Japan and Euro-zone. 2) the deterioration of balance of payment which caused by trade deficit and the decrease of current account surplus, that reflected weak domestic economic structure, and net capital outflow from foreign
investors capital transfer in order to cover financial losses in Japan and the US. In addition, private sectors increased their payback to foreign debt while profit repatriation also increased. Furthermore, Thai baht was expected to continually depreciate from high inflation, high dependence on import oil and
trend of the weaken current account and 3) downward trend of regional currency (especially for Korean Won, Philippine Peso and Indian Rupee), from upward inflationary pressure, surge in oil price and weakening
trade balance. These factors induced expectation of regional currency depreciation, and Thai baht is no exception.
Considering the movement of Thai baht against other currencies, it appreciated against some major and regional currencies but depreciated against Japanese Yen, Chinese Yuan, Euro and Singapore Dollar. Therefore, average nominal effective exchange rate (NEER) depreciated by 0.72 percent but real effective exchange rate (REER) appreciated by 1.98 percent underlined by relatively more rapid increase in Thai CPI . In July, an average exchange rate was 33.45 baht per US dollar, depreciated by 0.91 percent from June, resulting from high demand of US dollar by Thai importers and foreign investors, while depreciation of regional currency still played vital role.
- Stock market tumbled. Average daily trading value was 20 billion baht, increased from 18.8 billion baht in the first quarter. SET index closed at 768.6 points, down from 817 points at the end of previous quarter. Net sale of foreign investor was recorded at 36.1 billion baht. SET index rose to 884.19 points (highest level in the second quarter) in the first half of the quarter, from better-than-expected earning of energy and banking sector. During the latter half of the quarter, SET index plunged, caused by
massive net sale of foreign investors spurred by 3 main concerns: 1) domestic political uncertainty 2) world economic slowdown and 3) price surges on oil and commodity goods. While, less volatile market like debt securities market had attracted more funds. SET index drop in line with regional performance but to the
lesser extent. In July, SET index continued to fall from the same concerns as the second quarter.
- Bond trading accelerated. Daily average outright trading increased from 62.8 billion baht in the first quarter to 78.2 billion baht in the second quarter. Net buy of foreign investors was recorded at 26.5 billion baht declined from 29.08 billion baht in the first quarter. Bond price index decreased slightly. Government bond yields increased, particularly those of mediumterm maturity with average increased around 174 — 198 basis points. This, reflected market expectation on the Bank of Thailand decision’
to raise policy rate in order to handle acceleration in core inflation. In July, daily average trading volume was 77.2 billion baht, with net buy from foreign investor of 2.17 billion baht.
- Corporate funding increased from the same period last year but slowed down from last
quarter, in line with private sector investment direction. Corporate funding (excluding shortterm
bond) in the second quarter was 56.0 billion baht compared to 101.9 billion baht in the first quarter and 49.6 billion baht in the same period last year. Fund raised by financial and non-financial sectors registered 0.625 and 17.7 billion baht respectively. The issuance of initial public offering (IPO) accounted for 82.37 percent of total transaction. Total issuance of debenture record at 37.7 billion baht, with 20.5
billion baht from financial sector and 17.3 billion baht from non-financial sector.
1.2 The World Economic Performance in Q2/2008
The global economy in the second quarter of 2008 noticeably slowed down. Further losses in financial sector from the sub-prime mortgage will remain a significant downside risks to global growth. The US economy remained sluggish due to a contraction in residential investment and fragile consumption. Impacts of the sub-prime crisis also spilled over to the financial market and deteriorated overall economic
sentiment in the EU. The Japanese economy showed clear sign of moderation following weakened domestic demand and exports. The Chinese economy softened somewhat due to higher imports. Economic growth in Asian remained rather resilient, supported by a strong expansion of intraregional trade and domestic demand recovery.
- The US Economy moderated to 1.8 percent from 2.5 percent in the first quarter (1.9 percent, annualized qoq) due to slowing domestic demand. Private consumption was dampened by rising oil and food prices and tight credit conditions. Spending on durable goods such as vehicles was lacklustre. Nevertheless, spending on non-durable and services still held up well, helped partly by the boost from the stimulus payments in late April. Residential investment continued to fall in line with real estate sector. Home sales steadily declined particularly related to new houses, while existing home sales started to level off a
bit. New housing starts slipped since builders needed to cut back construction to stabilize inventory. This was in accordance with a contraction in housing construction. However, it is expected that housing inventory will continue to rise further because sales are dropping and foreclosures are rising which consequently put downward pressure on price of new home sales. Overall inventories in this quarter were run down significantly, concentrated in the manufacturing sector due to declined production of vehicles. In the mean
time, the improvement in exports and the decline in imports put net exports to be key drivers of the economy in this quarter and help countervailing the negative effect of inventory reduction. In the first half of 2008, the US economic growth came in at 1.4 percent (qoq) and 2.2 percent (yoy). On the stability front,
inflationary pressure has kept mounting. In the second quarter, headline inflation averaged 4.4 percent and hit the highest level in 17 years at 5.6 percent in July. Core inflation was 2.3 percent, compared with 2.4 percent in the first quarter.
- The Euro Zone Economy grew by 1.5 percent, down from 2.1 percent in the first quarter (or contracted by 0.2 percent, qoq). It was clearly evident that the slower growth prospects were observed in every member countries, particularly in Germany, France, Italy and Spain due to weaker domestic demand affected by higher inflation. In addition, the sunken confidence and tight loan condition also weakened business investment. Germany, France and Spain economy grew by 1.7, 1.1 and 1.8 percent, dropped from 2.6, 2.0 and 2.7 percent respectively. Italian GDP growth was only flat in the second quarter, which was the lowest level in nearly five years. Inflationary pressure continued to heighten following higher food and fuel prices. In the second quarter, average inflation of the Euro zone was 3.6 percent, up from 3.4 percent in the previous quarter. In July, headline inflation moved up to 4.0 percent. Elevated inflation
constrained the option for policy easing to help stimulate the slower growth. The European Central Bank previously decided to raise interest rates for the first time since mid 2007 from 4.0 percent to 4.25 percent on 3 July.
- The Japanese Economy grew by 1.0 percent, lower from 1.2 percent in the previous quarter.
Consumption and investment had clear sign of slowdown especially in residential construction which declined by 15.6 percent. Moreover, export growth also stepped down from 11.1 percent in first quarter to 6.4 percent impacted by a downturn of the US economy, one of key export market. Inflation rate accelerated due to
rising oil price, but still low compared to others Asian countries since the economy previously experienced deflation for a long period. Meanwhile, consumer confidence index (CCI) dropped to 32.2, the lowest level since 1982.
- The Asian Economy was weaker than the previous quarter but the growth still remained high. Despite facing with higher inflation boosted by elevated energy and food prices, particularly in emerging countries, consumption and investment still improved as well as exports which provided a strong drive
to growth. Although export to the US market dropped as US demand weakened, the intraregional exports still increased.
This supported overall export performance within the region.
- The South Korean Economy expanded by 4.8 percent, softened from 5.8 percent in first quarter. Exports grew strongly by 12.2 percent. Although exports to the US were on a downward trend but exports to Asian market increased significantly. Inflation in July recorded 5.9 percent, the highest rate in the past 10 years, which dampened domestic demand and squeezed corporate profits. Private consumption in this quarter dropped by 0.1 percent (qoq).
- The Chinese Economy continued to expand favourably by 10.1 percent, though somewhat moderated from 10.6 percent in the first quarter due to higher inflation and the world slowdown. Large and wellperformed domestic economy help cushion the Chinese economy and lessened the effect of the global downturn Moreover, the Government could continue the tightening monetary policies, in order to, cool down
the economy, including raising interest rates and tightening credit conditions. The Sichuan earthquake in May caused only limited impact on the overall economy since the damaged area was relatively small compared with the whole country’s area. On the trade side, despite accelerated imports, exports still remained
robust which led to a trade surplus. At the same time, foreign direct investment (FDI) continued to rise. In the first half of 2008, FDI increased to 52,388 million USD, compared to 82,658 million USD of last year.
- The Indian Economy performed well, though slowing down like other countries in
the region, dampened by soaring inflation following rising oil prices and Rupee depreciation. The inflationary pressure exacerbated the economy of all regions. Although the government raised oil price by
10 percent, domestic prices were still lower than the world price. As a result, the government needed to provide large amount of subsidies on domestic oil prices and energy cost. Moreover, the Central Bank of India raised policy rates and also reserve requirement to remain at 8.75 percent in order to easing inflationary pressure. Nevertheless, the inflation rate continued to climb up to 11.9 percent in June.
- The Indonesian Economy grew at a solid pace by 6.4 percent, up a bit from 6.3
percent in the earlier quarter, boosted by strong exports growth of 16.7 percent. Inflation in July hit the peak at 11.9 percent, while averaged 7.4 percent in the first half of the year comparing with 2.1 percent in
the first half of last year. To dipping its and inflationary expectation, the Bank Indonesia decided to lifted policy rate for 3 times during June to August to stay at 9.0 percent.
- The Malaysian Economy softened somewhat due to elevated inflationary pressure and the slowdown in global economy. Inflation rate in June was 7.7 percent. Although Malaysia was the oil exporter, the restructure of energy price on 4 June has kept domestic prices closer to international prices and consequently put more pressure on production costs and living expenses. The Bank Negara Malaysia decided to keep policy rate unchanged at 3.5 percent sine April 2006 because the central bank expected that inflation would decline in second half of 2008.
- The Vietnamese Economy expanded by 5.8 percent, lower than 7.5 percent in the
first quarter. Inflation in June spiked to 26.8 percent, the highest rate in the region. This owed to mounting fuels, food and residential prices. Moreover, current account and trade balance were also in
deficit which consequently caused Dong currency to depreciate. The State Bank of Vietnam put much effort to defend the Dong until international reserves depleted drastically. In June, the currency was
devalued by 1.96 percent to 16,461 Dong/USD. Moreover, the central bank also decided to lift up the interest rate by 2 percent to 14.0 percent.
(Continue to).../2.Economic Projection for..