- Domestic consumption of petroleum products:Alternative energy consumption rose sharply.
In the third quarter, consumption of gasohol increased by 91.27 percent, with average daily usage of 9.6 million litre (as a percentage of 44 of benzene consumption) While bio-diesel (B5) significantly grew by 499 percent, with average daily usage of 10.8 million litre. Moreover consumption of LPG similarly expanded by 27.13 percent. On the contrary, consumption of traditional benzene 95 and 91 and diesel continued to decline sharply by 81.0, 30.5 and 35.7 percent respectively. These figures showed a shift in the structure of energy consumption towards the alternative energy of which prices are evidently lower than those of the traditional energy. During July 2008, oil price reached its historical records, thus government announced the “six months, six measures” economic package to encourage gasohol usage by reducing the oil excise tax on gasohol 91 and 95 by 3.30 baht/litre, high speed diesel by 2.30 baht/litre and diesel B5 by 2.10 baht/litre. This measure shifted the energy consumption behavior toward alternative energy usage. However, after an expiration of “six months, six measures” economic package, the government is required to manage energy structure to reduce structural distortion and promote appropriate use of energy types among different user groups.
Petroleum Consumption
(%YoY) 2008
Q1 Q2 Q3 9 M
Benzene -1.92 -5.22 -7.27 -4.82
Octane (91+95) -26.42 -32.01 -40.14 -32.68
Gasohol 111.95 94.07 91.27 97.87
Diesel -0.37 -3.99 -14.40 -6.06
HSD+LSD -10.23 -20.44 -33.92 -21.12
B5 787.29 645.00 498.98 599.92
LPG 17.59 20.82 27.13 22.04
NGV 190.52 220.18 268.89 232.30
Source : EPPO
- Economic Stability: Inflation rate remained high but inflationary pressure has moderated since August 2008 while unemployment rate remained low but there is a risk from current account deficit.
- Internal stability
- Inflation rate: inflationary pressure has moderated since August 2008. In the third uarter, headline inflation was 7.3 percent softer than 7.5 percent in the second quarter due to sharply drop from the highest rate at 9.2 percent in July to 6.4 and 6.0 percent in August and September respectively, as a result of the 6 months 6 measures measures economic package. The package of free lectricity and water could lower price as much as 26.1 percent, the cut in diesel and gasohol excise taxes, together with the low oil price could drop the price of transportation and communication to 11.5 percent. Nevertheless food price continued to accelerate at the average of 13.9 percent in the third quarter, due o the increase in food products category such as cooking oil, rice, flour, meats, eggs and seasoning etc. For the first 10 months, headline inflation was averaged at 6.3 percent(C).
Core Inflation has declined since August. Its average rate in the third quarter stood at 3.0 ercent higher than that of in the first and second quarter due to higher prices of various products uch as processed food, construction materials, miscellaneous appliances, drug and medical care commodities, personal care expenditures and education expenditures at university level. For the first 10 months, core inflation was averaged at 2.4 percent.
- The average employment in the third quarter of 2008 was 37.84 million people, increased by 1.9 percent from the same period of last year. Agricultural sector employed 16.07 million people, increased by 3.7 percent while non-agricultural sectors employment accounted for 21.77 million eople, increased by 0.6 percent. Employment in the construction, trade and hotel and restaurant sector grew by 3.7, 1.9 and 2.1 percent respectively. Regarding manufacturing sector, employment dropped by 6.5 percent due to production slowdown. The unemployment rate remained low at 1.2 percent. By the end of the third uarter, there were 381,608 establishments registered for social security. The insured persons increased by 1.1 percent from the same period last year to the total of 8.89 million people. Working opportunity had drop, as job vacancy to applicants’ ratio reduced to 0.71 times compared to 0.82 and 0.79 times at the end of March and June 2008 respectively, which indicated lower job opportunity.
- External stability remained in check: International reserve stood at 102.421 billion US ollars at the end of September(D) (Net Forward Position was 13.390 billion of US dollars), equivalent to 3.8 — 4.2 times of short term foreign debt or 6.7 months of imports. International reserve continued to decrease in this quarter due to the deficit in current account and the outflow of foreign capital movement to ompensate financial losses from sub-prime crisis. Moreover, there was an international reserve intervention to prevent the significantly depreciation and fluctuation of Thai baht from rapidly foreign capital outflow. Current account balance in the third quarter registered a deficit of 2,461 million US dollars (or 83,189 million baht) higher than a deficit of 1,016 million US dollars in the second quarter. Under the circumstances of export slowdown as a result of the extreme recession of global economy, the deficit in urrent account is the key concern of economic stability management. Average exchange rate in the third quarter was at 33.84 baht per US dollar, depreciated from 32.28 baht per US dollar in the second quarter and 32.38 baht per US dollar in the first quarter. In the third quarter, Thai baht moved in the range of 33.26 - 34.69 baht per US dollar.(E)
(E) On 20th November 2008, exchange rate was at 35.07 baht per US dollar.
- Fiscal balance continued its surplus in last quarter of FY 2008. In the fourth quarter of fiscal ear 2008 (July — September 2008), the total of government revenue was 408,563 million baht, increased by 9.1 percent compared with the same quarter of the past fiscal year. The main sources of revenue in this quarter are corporate income tax, petroleum income tax, and income form state enterprises. Whereas the government expenditure was 413,322 million baht, decreased by 1.6 percent compared to the same period of the last year. Therefore, budget balance recorded a deficit of 4,759 million baht, compared to a deficit of 5,578 million baht in the same quarter of the previous fiscal year. Including a non-budget balance surplus of 31,818 million baht, budget cash balance before borrowing registered a surplus of 27,059 million baht, compared to a surplus 31,015 million baht in the same period of FY 2007. In this quarter, domestic borrowing by government bonds was 13,109 million baht, therefore budget cash balance after borrowing registered 40,167 million baht.
During the fiscal year 2008 (October 2007 — September 2008), government revenue recorded ,549,605 million baht, grew by 7.3 percent compared to the same period of the last fiscal year due to the higher tax collection especially of corporate income tax, value added tax, import duties, as well as increasing income from state enterprises. Regarding government expenditure side, the total disbursement was 1,633,404 million baht, increased by 3.7 percent compared with the same period of past fiscal year. As a result, budget cash balance registered deficit of 83,799 million baht, decreased by 35.7 percent compared o the same period of last fiscal year. Including non-budget cash balance surplus of 5,053 millionbaht, budget cash balance before borrowing faced deficit of 78,746 million baht, dropped by 50.4 percent compared to the same period of FY 2007. The financing of deficit was through an issuing of 165,000 million baht worth of treasury bills (T-bills) and government bonds, a full amount of a deficit financing plan.
- Public debt at the end of September 2008 stood at 3.41 trillion baht, increased by 1.0 percent from the outstanding of public debt at the end of June 2008, mainly because of an increase in direct government foreign debt and the domestic debt of special financial institutions. Pubic debt to GDP ratio slightly increased to 36.22 percent, compared with 35.88 percent at the end of June 2008.
Financial conditions: Policy rate was increased to 3.75 percent as concerns over inflationary ressure heightened. Money market interest rate increased due to liquidity reduction and higher capital demand from private sector amid rising cost of production, and household credit expansion in tandem with rising loan demand for housing and car leasing. Bank deposit continued to decline in response to low nterest rate and changing investment strategy toward bill of exchange and bond holding. Thai baht has depreciated. SET index declined both in terms of price and volume and associated with a greater volatility while foreign investors adjusted their portfolio from equity to debt market.
- Policy rate was 3.75 percent at the end of Q3,increased from 3.25 percent at the end of Q2 as concerns over inflationary pressure heightened. Over the same period, the Federal Reserve Board kept its Fed Funds Rate unchanged at 2 percent. European central bank lifted its policy rate to 4.25 percent; Bank of Japan put its policy rate on hold at 0.5 percent and People Bank of China lowered its policy rate for the first time since 2002 to 7.2 percent. However, the worsening global economic condition posted a greater downside risks to the Thai economy. Meanwhile the decline in oil prices and the government measures has shifted policy rate outlook to a downward trend.
Real interest rate increased as commercial banks’ deposit and lending rates were kept unchanged but inflation rate decelerated in August and September. At the end of Q3, an average 3-month and 12-month time deposit rates of five major commercial banks remained at 2.50 and 2.88 percent per annum respectively while MLR lending rate kept on hold at 7.38 percent per annum. However, the inflation rate reduction resulted in higher real 12-month time deposit rate from negative of 6.03 percent per annum in the second quarter to negative of 3.13 percent annum and higher real lending from negative of 1.5 percent per annum to 1.4 percent per annum.
- Commercial banks’ deposits continued to contract. At the end of the third quarter commercial banks’ deposits declined by 0.2 percent, continued from 1.0 percent contraction in the second quarter. Saving in deposit accounts declined especially those accounts over 10 million baht. This was partially attributable to Deposit Protection Agency Act B.E. 2551 that was enforced in August as well as the structural shift in saving pattern toward bill of exchange (B/E) and short-term bond.
- Business and Household credits continued to expand while deposit declined. Commercial banks’ credit rose by 14.3 percent, accelerated from 12.1 percent in previous quarter. The growth rate of credit extended by depository corporations(F) accelerated from 8.6 percent in the second quarter to 10.4 percent in the third quarter, of which business and household credits increased by 13.2 percent and 8.7 percent respectively. Classified by sectors, growth rate of loans to industrial production accelerated from 7.4 percent in the second quarter to 12.3 percent in the third quarter. Growth of loans to wholesale & retail and personal consumption were relatively stable compared to second quarter due to concern over deteriorated economic prospect. Loans to financial intermediation and real estate sectors continued to slow down, owing to the impacts of US financial crisis that lowered consumers and investors’ confidences. Loans to construction sector contracted continually. Moreover, credit card spending slightly decreased owing to concern over the future incomes and purchasing power in spite of deteriorating economic prospect. However, advanced cash withdrawn by credit card holders increased and credit card outstanding balance rose by 6.4 percent reflecting lower repayment capability.
- Liquidity in banking system declined. The continual acceleration in commercial bank credit expansion and a decline in banks’ deposit raised credit to deposit ratio to 103.2, reflecting tighter liquidity condition. Nevertheless, excess liquidity in banking systems, estimated as disposable liquidity, was approximately at 924.9 billion baht, increased by 1.7 percent from the same period of last year. Commercial banks are likely to be more cautious in their lending practices as risk and asset quality evaluation become increasingly sophisticated.
- The ratio of NPLs to credit outstanding slightly dropped. NPLs in financial institutions (excluding BIBF and credit fanciers) at the end of third quarter were at 229.98 billion baht, equivalent to 3.59 percent compare to 3.77 percent in the second quarter.
- Thai baht depreciated. Average exchange rate in the third quarter was at 33.84 baht per US dollar, depreciated by 4.83 percent from the second quarter but appreciated slightly by 0.49 percent from the same period of last year. Thai baht had depreciated through-out the third quarter, touching the weakest point at 34.73 baht per US dollar during mid-September. Factors contributed to such event were: 1) net capital outflow from stock market in order to cover losses from worsen financial crisis situation in the US 2) the deterioration of trade and current account balances which was caused by deficit in trade and current account balances and 3) Thai baht and regional currency were expected to depreciated even further from continue capital outflow by foreign investors as financial losses are deepened and liquidity are needed in US and Euro market. Furthermore, shift in investment strategy toward risk reduction also contributed to the capital outflow. Thus, demand for US dollar by foreign investor had accelerated. Considering the movement of Thai baht against other currencies, it depreciated against most major and regional currencies but appreciated against Philippines Peso and Indian Rupee. Therefore, average nominal effective exchange rate (NEER) and real effective exchange rate (REER) depreciated by 2.69 and 3.81 percent respectively. In October through to November, Thai baht continued to depreciate further with average exchange rate of 34.38 baht per US dollar in October and 34.95 baht per US dollar in November (average exchange rate from 1st to 22nd of November).
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