(Update 5)ECONOMIC OUTLOOK THAI ECONOMIC PERFORMANCE IN Q3 AND OUTLOOK FOR 2008 - 2009

1.2 The world economic performance in Q3/51

• In Q3 the subprime crisis triggered banking insolvency problem and mutated into a full- blown global financial crisis encompassing broader countries in Europe and resulted in worldwide stock market contraction. Money and capital markets liquidity in major economy was severely tightened and eventually affected money and capital market as well as real economic activities in various countries.
• Together with the impacts of economic slowdown in the first half of 2008, the recent financial crisis in Q3 aggravated the global economic condition to deteriorate significantly. Recent data indicated that, the major economies as well as some developing countries such as the US, Euro-zone, United Kingdom Japan, Singapore and Taiwan have slipped into economic recession while other countries including major newly emerging economies such as China, India and Russia showed a clear sign of shaper economics slowdown than previously expected.
• In an attempt to revive financial institutions, to limit contagion effect of backing crisis as well as to reduce risk from self-fulfilling economic contraction, countries with crisis origin have lunched various measures such as direct liquidity injection, recapitalized and nationalized financial institutions, low interest rates policy. However, both financial conditions continued to deteriorate in the beginning of Q4 which are likely to further aggravate real economic activities in the remaining of the year.
• The slow down of world economics has lowered commodity price and inflation pressure. Central banks in any countries rapidly decreased the interest rate to stimulate their economies and encourage confidence in financial market. In October the central bank of Australia, New Zealand, Norway, and Fed decided to decrease the interest rate by 1.0 percentage point. European central bank (ECB), Switzerland, and the United Kingdom decided to cut the interest rate by 0.5 percentage point. Japan decided to decrease the interest rate by 0.2 percentage point. Canada decided to decrease the interest rate by 0.75 percentage point. Also recently, in November, ECB and the United Kingdom decided to decrease the interest rate by 0.50 and 1.50 percentage point. In the rest of the year, central banks of the United state, Canada, New Zealand are expected to decrease the interest rate by 0.25, 0.25 and 0.50 percentage point, while developing countries and newly emerging economic have adopted economics stimulating policy.
• The world economic outlook of the fourth quarter has loomed to be slow down due to the economic contraction in the United State, Euro-zone, Japan and the United Kingdom which tend to contract more. Developing countries and newly emerging economies, particularly Asian, highly depending on export countries, tend to receive increasingly the negative impact of economic slow down of developed countries. The slow down of world trade together with the adjusting of global financial market and the down turn situation of security market have caused developing countries and newly emerging economies, which have current account deficit and high foreign debt, a risk of facing crisis of deficit of balance of payment and foreign reserve.
• World Economics in the year 2008 is forecasted to expand 3.7 percent, contracting from 5.0 percent in 2007. This is the result of economic slow down in United State, Euro zone, the United Kingdom, and Japan which in 2008 grow 1.3, 1.2, 0.8 and 0.5 percent respectively, comparing with that of the year 2007 which grew 2.0, 3.0, 3.1 and 2.1 percent respectively. In the year 2008, NICs such as Taiwan, Singapore, South Korea and Hong Kong are expect to grow by 3.8, 2.3, 3.8 and 4.1 percent respectively, comparing with that of the year 2007 which grew 5.7, 7.7, 5.0 and 6.3 percent. The rate of economic growth of newly emerging economies namely China, India and Russia are expect to decrease from 11.9, 9.2, and 9.5 percent in 2007 to 9.7, 7.8 and 6.8 percent in 2008. The situation in main economies are as follows.
• The US Economy in the third quarter the subprime loan market problem had expanded widely and triggered financial crisis problem, which resulted in a huge amount of financial institutions facing liquidity and solvency problems. The problem had already troubled the US real sector which was in slow down condition in the first half of the year. In this quarter, the US real GDP increased by 0.8 percent (yoy), but decreased by 0.3 percent comparing with that of previous quarter (qoq) and entering technical recession. As early forecasted, the economic contraction was due to the contraction of personnel consumption expenditure which was registered 3.1 percent (qoq) and durable goods consumption decreased by 14.1 percent. (qoq) The reason behind this was the decrease of wealth of household causing by the decrease of security and house prices, reducing employment and tightening loan condition. In an addition, investor’s confidence has continually decreased, loan has slowed down, export increased at the lower rate at 5.9 percent, comparing with 12.3 percent in second quarter, current account has improved and contributed to economic growth, the contraction of domestic economics due to consumer-led recession caused a deceleration of import by 1.9 percent (qoq). The US government has adopted several measures to solve economic problem continually. The crucial measures were namely to increase liquidity into the market, to nationalize and recapitalize the problematic financial institution, to cooperate with central bank of foreign countries in order to limit the financial crisis expansion, including 700 billion dollars rescue package. Since the beginning of last quarter, the circumstance has not improved and tended to further slow down. Presently, in October, the ISM index has dropped to 38.9 percent and car sales has made the record low in 25 years which point out the propensity of economic recession. Moreover, the unstable of financial institutions and uncertainty of counterparty risks caused illiquidity. Together with the falling down of asset values, the entrepreneurs will have difficulty in raising fund and expanding business expenditure. In the residential sector, however, housing market continued to run down but it is not yet the lowest condition. The housing sales and price has continually gone down as well as employment rate and consumer confidence. Thus, the private investment is expected to severely fall in the forth quarter. Against this situation, FED determined to cut the rate twice in October, from 2.0 percent at the end of second quarter to 1.0 percent in October. Overall, US economy in the last quarter is expected to descend from 3.8 percent from third quarter and the economic growth of 2008 is expanded to be at 1.3 percent.
• The Euro Zone Economy grew by 0.7 percent (yoy) in the third quarter of 2008, slowed down from 2.1 percent in the first quarter and 1.4 percent in the second quarter but decreased by 0.2 percent quarter on quarter basis. Together with a contraction of 0.2 percent (qoq) in the second quarter, the Euro Zone economy entered a full-fledged recession. Export growth slowed down due to the recession in major trading partners and the Euro currency appreciation. Investment slowed down due to the deterioration in financial condition that aggravated the lending and added the risks for a sharp economic recession. The manufacturing Purchasing Managers’ Index (PMI) dropped rapidly in September to 44.1, its lowest level since the end of 2001. The industrial confidence index continued to decline due to the worsening condition in both export and domestic demand. Among the member countries, the PMI indicated that manufacturing production of only Greece and the Netherlands continued to see an expansion of output. While France, Spain, Italy, and Germany xperienced record rates of contraction. Italian manufacturing production declined at the secondfastest ate in its survey history and Germany manufacturing production felt at fastest pace in six years. The services PMI declined to its lowest level since mid-2003. Retail sales decreased by 0.1 percent in September indicated the contraction of private consumption. Consumer confidence index decreased by 23 percent in October to its historically low level due to the deteriorating financial and economic conditions. Unemployment rate increased to 7.5 percent in August, in tandem with weakening economic activities. Current ccount deficit increased due to the slowdown of export. However, the declined in commodity prices eased inflationary pressures. Under the deteriorating financial and economic conditions, the European Central Bank has injected liquidity to financial system, cut its policy rate from 4.25 percent at the end of the third quarter to 3.75 percent in October and to 3.25 in November. For the rest of the year, the Euro-zone economy is likely to experience a sharper rate of contraction due to the worsening financial and U.S economic onditions as indicated by the decline of manufacturing PMI in October to its historically low level of 39.8. Against this development, the Euro Zone economy in 2008 is expected to grow by 1.2 percent, compared to 2.6 percent in 2007.
• The UK Economy grew by 0.3 percent in the third quarter (yoy), down from 0.5 percent in the econd quarter (qoq). Non-agriculture production declined by 1.0 percent. Industrial production fell by 1.0 percent, the decline in every industry. Construction sector contracted by 0.8 percent. Service sector declined was recorded by 0.4 percent due to the contraction of hotel and restaurant and financial sector. On emand side, only government expenditure expanded by 0.4 percent (qoq). However, trade deficit decreased due to the weak domestic economic condition and the reduction of real incomes that reduced imports.
• The Japanese Economy contracted by 0.1 percent in the third quarter (yoy), the first contraction since the second quarter of 2002. The contraction is attributable to the sharp decline in domestic demand particularly the reduction of investment of 3.6 percent, the six consecutive quarters decrease. Private onsumption slightly increased by 0.4 percent, down from 0.5 percent in the second quarter, reflecting high oil price. The contribution from international trade which is the main growth engine slowed down sharply. Export growth significantly slowed down to 4.2 percent compare to 11.1 percent in the first quarter and .1 percent in the second quarter due to a slowdown in world economy and the Yen currency appreciation. With respect to economic stability, inflation accelerated to 2.15 percent, the highest level in 10 years. Unemployment rate increased to 4.1 percent, its highest level since 2006. The recent indicators indicated a urther slowdown of economic condition. In September 2008, business shutdown rate rose 34 percent, the fastest pace in eight years. Retail sales declined by 0.3 percent, to its lowest level since July 2007. Industrial production index declined by 2.4 percent. Export orders declined for 3 consecutive months. onsumer confidence index fell sharply by 29.4 percent in October to its historically low level. The downward trends of the US and Euro Zone economy are likely to aggravate the Japanese economy in Q4 further. Against this background, the Japanese economy is likely to contract by 0.4 percent which will lower the hole year growth rate to 0.4 percent, from 2.1 percent in 2007.
• The Chinese Economy grew by 9.0 percent (yoy), down from 10.1 percent in previous quarter. This marked the fifth consecutive quarterly slowed down and the first one-digit economic growth rate since Q4-2005. Although the Chinese official did not release quarterly report on demand side, but the slowdown of economy is likely because of the slowdown in export which consistent with the fifth consecutive quarterly slowed down of industrial production to 10.5 percent. Real estate sector was affected by tight credit condition. In the first 9 months, home sales plunged by 42 percent from the same period last year. However, domestic demand growth remained buoyant. Retail sales and investment in durable goods in the first nine months continued to expand by 23.2 percent and 27.6 percent respectively. However, in the fourth quarter, the slowdown in export, manufacturing production and real estate sector are likely to drag on investment in durable goods and household consumption which are the main growth drivers for Q3. As investment in manufacturing and real estate sectors are accounted for 33 percent and 25 percent of total investment respectively, the slowdown in manufacturing and real estate sectors are likely to bring down investment in durable goods. In addition the employment in export sector is estimated at about 45 millions. Therefore, the weaken export will increasingly drag on incomes and consumption. Against this development, the Chinese economy is likely to slow down further in Q4 and bring down the whole year growth to 9.7 percent, compare to 11.9 percent in 2007.