International reserve at the end of July 2010 stood at 151.52 billion US dollars (excluding Net Forward Position 11.02 billion US dollars), which was equivalent to 4.8 time of short-term foreign debt or 3.5 months of import.
"...International reserve at the end of July 2010 stood at 151.52 billion US dollars. "
Current account in the second quarter registered a surplus of 1,297 million US dollars which was equivalent to 42,041 million baht, a continued surplus from 5,252 million US dollars in the previous quarter. This was attributed by trade balance surplus of 4,645 million US dollars and net service, income and transfer surplus of 3,348 million US dollars.
"...Current account remained surplus. "
Headline inflation: average headline inflation in the second quarter of 2010 was at 3.3 percent, declined from 3.8 percent in the previous quarter, mainly resulted from an increase in fresh food products, particularly in vegetables, fruits and consumer goods, as shown in the 4.8 percent growth in food and beverage price index. Whereas non-food and beverage price index increased by 2.3 percent, mainly due to higher retail oil prices in the domestic market, as well as higher water supply charge due to the termination of water supply subsidy from the government since April 1, 2010. In the second quarter, core inflation rate was at 0.9 percent, increased from 0.4 percent in the previous quarter. This reflects in the upward trend of most commodities’ prices. In the first half of 2010, headline inflation was 3.5 percent and core inflation was 0.7 percent. (4)
"...Headline inflation in the second quarter of 2010 stood at 3.3 percent, declined from the previous quarter. "
Producer price index in the second quarter rose by 9.3 percent, declined from 12.0 percent in the first quarter. Such rising was mainly contributed by higher agricultural products prices, as a result of lower supply of crop production which was damaged by drought. Moreover, this has put pressure toward production cost, especially on petroleum and rubber products due to an increase in demand from automobile industry following a recovery in global economy and purchasing orders. For the first half of 2010, producer price index expanded by 10.6 percent.(5)
Note
(3) Capital and financial account figure at the end of 2nd quarter is preliminary data from Bank of Thailand, which is subjected to change.
(4) In July 2010, headline inflation was 3.4 percent, whereas core inflation was 1.2 percent.
(5) In July 2010, producer price index rose by 11.1 percent.
"...SET index experienced downward volatility but managed to recover during the end of the quarter. "
SET index volatility increased. In the second quarter, SET index moved in the range between 714.7 - 820.1 points. At the beginning of the second quarter, SET index has plunged from heightening in uncertainty of domestic political unrest and EU fiscal solvency. Nevertheless, SET index has recovered during the last month of the second quarter, following improvement in regional stock index performance and continued in surplus earning of listed companies. SET index closed at 797.3 points, slightly increased from 788.0 points in the previous quarter. In this quarter, foreign investor recorded a net sell of 59.9 billion baht, compared to a net buy of 42.5 billion baht in the previous quarter. Average daily trading value accelerated from 19.1 billion baht to 21.4 billion baht. During July through 19th August 2010, investors’ confidence over the stock market has risen sharply from better-than-expected regional economic outlook and continue appreciation of regional exchange rate. As a result, SET Index closed at 891.2 points. Average trading value was 31.2 billion baht and foreign investors’ net buy value of 17.5 billion baht.
"...Daily average outright trading and government bond index improved. Foreign investors continued to record a net buy. "
Bond market sentiment improved and foreign investors’ recorded a net buy. Daily average outright trading in the second quarter was 64.8 billion baht, slightly increased from 61.4 billion baht in the first quarter. Government bond index increased from the previous quarter due to (i) decline of government bond supply in the primary market and (ii) foreign investors posted a net buy of 26.6 billion baht in accordance with regional capital inflow. In July 2010, daily average outright trading and government bond index slightly decreased. Bond yield increased following policy rate rise. However, foreign investors continued to record a net buy.
"...Fundraising through equity securities were improved, while fundraising through debt securities remains high. "
Corporate fundraising increased. Private fundraising totaled at 312.2 billion baht, increased from 294.1 billion baht in the same quarter of 2009. Debt securities issuance has dominated the private fundraising market, with a total of 275.5 billion baht. The majority of debt securities issuance came from financial intermediation and real estate sectors. Meanwhile, fundraising through equity securities were improved significantly to 36.8 billion baht, higher than the amount of fundraising for the whole year of 2009 at 29.5 billion baht. Most of equity securities were issued by real estate sector. This reflected higher investors’ confidence over the future economic outlook.
2. Oil Price and Oil Price Trend in 2010
Oil price in Q2/2010
World crude oil prices continued to escalate at a faster pace due to the last year low base effect. In the second quarter of 2010, an average world crude oil price (Dubai, Brent, Oman, and WTI) stood at 78.4 US dollars per barrel, increased by 32.2 percent from the same period of last year. Such expansion was due to the low base effect resulting from the world economic recession. Moreover, the upward trend was owing to a faster-than-expected recovery of the US economy and strong recovery of Asian countries, particularly China and India. In addition, the depreciation of US dollar also encouraged investors to increase their position in commodity markets.
"...World crude oil prices continued to escalate at a faster pace due to the last year low base effect. "
Domestic retail prices in the second quarter of 2010 heightened in all petroleum products, compared to the same period of last year. Retail prices of gasoline 95, gasoline 91, gasohol 95 (E10), gasohol 95 (E20) and gasohol 91 increased by 10.9, 17.9, 21.7, 23.2 and 17.9 percent respectively. Similarly, an average price of high speed diesel and bio-diesel (B5) rose by 18.2 and 29.3 percent respectively. The acceleration in domestic retail petroleum prices was mainly due to a low base effect, resulted from lower oil price in last year.
"...Domestic retail petrol prices of all petroleum products heightened from last year. "
Oil price trend in 2010
An average Dubai crude oil price in the first 7 months of 2010 was 76.14 US dollars per barrel, and stood at 73.88 US dollars per barrel on the 19 August 2010. Recently, several institutions adjusted the crude oil price forecast. The Energy Information Administration (EIA) forecasted that the average crude oil price of WTI would drop to 75 - 79 US dollars per barrel in 2010. Nomura revised its forecast upward from 72 to 85 US dollar per barrel in 2010 and expects the prices in 2011 and 2012 to be 95 and 110 US dollars per barrel respectively. Similarly, NESDB expects that the average crude oil price would be in the range of 75 - 80 US dollars per barrel, higher than 61.60 US dollars per barrel in 2009. Key supporting factor for higher oil price is the continued recovery of the global economy.
"...The average Dubai crude oil price in 2010 is expected to be in the range of 75-85 US dollars per barrel. "
Crude Oil Price Forecast
EIA (Aug 2010) WTI = 75-79 US$/barrel
Nomura (May 2010) 2010 = 85 US$/barrel
Barclays Capital (July 2010) Q4/10 = 87 US$/barrel
Goldman Sachs (June 2010) Q3/10 = 82 US$/barrel
Q4/10 = 90 US$/barrel
"...The world economy has shown a sign of slowing down in the second quarter of 2010, especially the economies in the Eurozone where the economic condition remained vulnerable due to the decline in domestic demand. The US economy, on the other hand, has persistently expanded, although the signs of slowdown have presented.
3. World Economic Performance in Q2/2010 and Outlook in 2010
The world economy showed a sign of slowing down in the second quarter of 2010, especially the economies in the Eurozone. Although the commercial banks in Greece has passed the Stress Test and guaranteed for secured debt financing, the economic situation of the economies in the southern part of the Eurozone was still vulnerable. This could dampen the recovery of domestic demand in the Eurozone, which in turn could cause a reduction in exports to Europe from some Asian economies. The growth momentum in Chinese economy also developed at a slower pace, compared to the remarkable expansion in the first quarter, whereas the US economy has continuously expanded. However, there are some signs of economic slowdown in the US, for example, the gradual fall in inventory stock cycle, the vulnerability of the employment and housing sector, and shrinking consumer confidence. The summary of the economic performance in the main economies are illustrated as follows:
US economy expanded by 3.2 percent on a year-on-year basis, increased from the 2.4 percent growth in the previous quarter. On a seasonally adjusted quarter-on-quarter basis, the US economy expanded at a slower pace of 2.4 percent, as compared to 3.7 percent in the previous quarter. This was a result of the expiration of some fiscal stimulus measures in the coming months and a slowdown in the inventory restocking. Private consumption and investment in this period was on a recovery path, while industrial production expanded by 7.2 percent (Y-o-Y). Capacity utilization index escalated by 73.8 percent, while new orders grew by 63.3 percent. The PMI in this quarter improved slightly to 58.8, however, the PMI in July shrank to 55.5, as a result of a slowdown in new orders and a fall in production. Imports showed a slower sign, whereas exports grew by 5.5 percent (Y-o-Y). The US trade balance was 132.2 billion dollars deficit. Furthermore, in the first half of 2010, the US trade deficit accumulated to 247.5 billion dollars, as compared to 170.9 billion dollars in the same period of last year. In the second quarter of 2010, the inflation decreased to 1.8 percent. In terms of employment, 14.95 million people were unemployed which reflected an unemployment rate of 9.7 percent, the same percentage as the previous quarter. The nonfarm payroll employment continued to grow as 130.04 million more people were employed in the second quarter.
Eurozone Economy expanded for the fourth consecutive quarters in the second quarter of 2010. GDP grew by 1.7 percent on a year-on-year basis, increased from a 0.6 percent gain in the preceding quarter. On a seasonally adjusted quarter-on-quarter basis, the Eurozone economy grew by 1.0 percent, up from 0.2 percent growth in the first quarter. An increase in domestic demand, mainly public spending and inventory offset the deceleration of external trade, private consumption continuously dropped due to the tightened fiscal policy in the region caused lower income of households. In addition, a construction sector seemed to experience a downturn, whereas industrial production and service sectors have developed positively since the third quarter of 2009, except Greece that have persistently experienced an economic slowdown. In the second quarter, the industrial producer price index rose by 1.7 percent.
Hungary, Greece and Romania were the countries with high inflation, inflation reached 5.2, 5.1 and 4.3 percent respectively, whereas Latvia and Ireland experienced the deflation of 2.0 percent. In the second quarter, the average inflation in the Eurozone rose by 1.5 percent and the annual inflation rate is expected to be 1.7 percent. The current account deficit was 25.4 billion EUR, decreasing from the same quarter of 2009 (37.2 billion Euro) which accounted for 1.1 percent of GDP. Euro currency continuously appreciated against USD and Japanese Yen.(6) Unemployment remained stable at 10.0 percent for two consecutive quarters.
Japanese economy expanded by 2.0 percent on a year-on-year basis, decreased from the 4.7 percent growth in the previous quarter. On a seasonally adjusted quarter-on-quarter, basis, the Japanese economy expanded at a slower pace of 0.1 percent, compared to that of 1.1 percent growth in the preceding quarter. This was a result of shrinking domestic demand, private consumption and private investment, which in turn, an effect of deflation and high unemployment. Industrial production grew by 1.4 percent, the slowest growth since the economic crisis in the second quarter of 2009. PMI was at 53.8, exhibiting a strong manufacturing sector. Furthermore, in July, the PMI decreased to 52.8, reduced from a 53.9 in June. In this quarter, exports expanded by 30.0 percent, a decrease from the preceding quarter whereas imports expanded by 16.0 percent. Inflation rate in the second quarter contracted by 0.9 percent. In June, inflation rate contracted by 0.7 percent. Unemployment rate reached 5.3 percent and in June was also 5.3 percent, the highest rate in the first 6 months.
"...Chinese economy has slowed down in the second quarter of 2010. Furthermore, the industrial production has decelerated as compared to the previous quarter. This was corresponded to the lower PMI of 53.9.
Chinese economy expanded by 10.3 percent on a year-on-year basis, decreased from 11.9 percent growth in the previous quarter. Industrial production expanded by 15.9 percent, contracted from 19.6 percent growth in the preceding quarter. The PMI in this quarter was 53.9, fall from 54.3 in the previous quarter. In the first six months, consumer goods retail sales increased by 18.2 percent on a year-on-year basis, higher than in the first quarter. Exports expanded by 40.9 percent, an increased rate compared to the previous quarter. Imports, on the other hand, expanded by 44.1 percent, sharply decreased from 64.6 percent growth in the previous quarter, reflected from a slowdown in domestic investment. Inflation in this quarter rose to 2.9 percent. Investment in fixed assets grew at a slower pace of 25.2 percent, whereas in the first half of the year, the investment in fixed assets expanded by 25.5 percent, totaling to 9,804.7 billion Yuan. The PMI fell to 51.2 in July, raising the concern about a downturn in manufacturing sector in the second half of the year.
Note
(6) As of August 4th, the Euro/USD strengthened by 9.9 percent from its weakest point (as of June 9th, 2010), whereas Euro/Yen appreciated by 3.29 percent from its weakest point (as of June 8th, 2010). As a consequence of the Euro authorities (CEBS)’s stress test exercise on July 23, 2010 of which only 7 banks out of 91 did not meet the threshold of 6% capital ratio benchmark.