1
I Economic and inflation outlookI. Economic and inflation outlook
II Monetary policy stances going forwardII. Monetary policy stances going forward
2
I Economic and inflation outlookI. Economic and inflation outlook
II Monetary policy stances going forwardII. Monetary policy stances going forward
3
The Thai economy is viewed to moderate from last assessment from the intensified impact of the euro area’s crisis
on merchandise exports, which, in turn, will also affect domestic demand going forwarddomestic demand going forward
4
Forecast summary for 2012 and 2013
• Growth forecasts for 2012 and 2013 are revised down to 5.7 and 5.0 percent, respectively, while inflation is likely to soften throughout the forecast period.
2011 2012 2013GDP Growth 0.1* 5.7 5.0
(6.0) (5.8)Core Inflation 2 4* 2 2 1 9Core Inflation 2.4 2.2 1.9
(2.5) (2.1)Headline Inflation 3.8* 2.9 3.4
*Outturns
(3.5) (3.5)
5
( ) Inflation Report May 2012
Main factors leading to forecast revisionPost-flood recovery was robust in the first half of the yearPost-flood recovery was robust in the first half of the yearBut going forward, growth momentum is likely to moderate from:
1 Decelerating domestic demand after picking up earlier in the year1. Decelerating domestic demand, after picking up earlier in the year2. Weakening global growth and heightened risks, which will weigh on
merchandise exports and internal demand going forwardmerchandise exports and internal demand going forward3. Fiscal stimulus that softens from the previous assessment
Overall inflation pressure declines with lower cost and demand pressureOverall inflation pressure declines with lower cost and demand pressure
6
Post-flood rehabilitation accelerated in the first half,resulting in less demand momentum going forwardresulting in less demand momentum going forward
• In the first half of the year businesses ramped up their investment for • In the first half of the year, businesses ramped up their investment for machine replacement and reconstruction, which helped support production and exports to rebound firmly production and exports to rebound firmly
• In the period ahead, domestic demand is likely to moderate, as businesses recovered rapidly and a large part of pent-up demand has been satisfied already in the first half
7
Global growth prospects weaken further
L di i di f d i f ll b l 50 • More broad-based impact of the euro
area’s debt crisis on the global economyM f t i P h i M ’ I d (PMI)
Leading indicator of production fell below 50, indicating further weakness
• Increasing signs of slowdown in advanced and emerging market economies60
Index (50 = unchanged)
Manufacturing Purchasing Managers’ Index (PMI)
Last IR (May)
• Global economic recovery likely to be more protracted55
• Heightened risks to growth, with some central banks starting to ease their monetary policy further to contain 45
50
monetary policy further to contain downside risks
40
45
Jan-11 Apr Jul Oct Jan-12 Apr
8
p pAdvanced economies Emerging market economies
Source: IMF World Economic Outlook, July 2012
Euro area’s economy becomes more fragile …• The debt crisis has impacted the real sector severely and is likely to be prolonged.
Composite* Manufacturing Services**
Private sector sentimentsEU Purchasing Managers’ Index (PMI)
Diffusion index
60
Diffusion indexPar = 50 Last IR (May)
120
Diffusion indexPar = 100 Last IR (May)
50
55
100
110
45
50
90
100
40Jan 11 Apr Jul Oct Jan 12 Apr Jul
80Jan 11 Apr Jul Oct Jan 12 Apr Jul
9Sources: CEIC, CESifo, European Commission, Eurostat, INSEE, Markit Economics
*Composite Output Index **Services Business Activity Index
Germany IFO France INSEEEC Economic sentiment
.. and risks to euro area’s growth remain high going forward
• Whil th d bt i i d f th EU it • While some progresses on the debt crisis emerged from the EU summit meeting in June, implementation hurdles remain as reflected in global market sentiment that improved only temporarily market sentiment that improved only temporarily
• Existing structural concerns will continue to hinder recovery in the period ahead
• Euro area’s banks continue to deleverage and tighten credit standards • Cost of funds remain elevated• Many European governments need to implement further fiscal
consolidation
10
Asian growth outlook moderates from the previous assessment• Exports continue to decelerate from the impact of global slowdownp p g• However, Asian economies still have ample policy rooms for internal stimulus
China Singapore South KoreaDiffusion index Par = 50
New Export Orders
Last IR (May)
60
65
60
65Last IR (May)
45
50
55
45
50
55
35
40
45
35
40
45
11Source: CEICJan-11 Apr Jul Oct Jan-12 Apr Jul
Thai exports will likely subside with global demand slowdown, as signaled by leading indicators that fell below par value
Total Export (%YoY)
Projections of Export Values for 2012BOT (as of Jul 12) 7.0%BOT ( f J 12) 8 3%
Leading Indicators of Thai Exports
7060
US's ISM Export Order (3-month leading)China's New Export Orders (5-month leading)BSI Export Order (3-month leading)
%YoYDiffusionIndex
BOT (as of Jun 12) 8.3%MOC (as of Jun 12) 15.0%FPO (as of Jun 12) 12.8%
60
70
30
60
40
50
-30
0
30-60Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12
12( ) Duration that each indicator leads Thai exports Sources: Bloomberg and Bank of Thailand
i l i l f f h i Fiscal stimulus softens from the previous assessment,but remains supportive for growth going forward
• Investment spending through budget and water management plans for 2012 is delayed from assessed, partly postponed to 2013-2014
• Part of government consumption is reclassified into transfer payments, which help support household spending indirectly
May-12
Assumptions on Public Investment*
Unit : Billion baht
Assumptions on Government Consumption*
May 12Jul-12
Unit : Billion baht
1,541 1,6231,481 1,608
691886
648867
FY 2012 FY 2013 FY 2012 FY 2013FY 2012 FY 2013 FY 2012 FY 2013
* Government’s direct spending that includes water management projects (3.5 billion baht in total) 13
Weaker global growth and softer government spending will weigh on private consumption and investment in the period ahead
ll d d d ( )
Projection of private demand
130
Jul-12 May-12
Seasonally adjusted index (2010Q1 = 100)
120
100
110
90Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014
Forecast period
Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014
Source: Bank of Thailand 14
However, private consumption and investment will continue to grow and serve as the main growth engine going forward
Key supporting factors include:Business Sentiment
(above 50 = better prospects)70Diffusion Index
3 M th E t d I t t S ti t I d• Household’s favorable income prospects• Positive business sentiment 54.7
62.0
50
60
3-Month Expected
3-Month Expected Investment Sentiment Index
• Stimulus measures from government and financial institutions 30
40
2008 2009 2010 2011 2012
Domestic Order Books Index
3 93
10• Conducive monetary conditions
Real MLR
% Real Interest Rate
3.93
-0.210
5
Real 12M Deposit
15
-52008 2009 2010 2011 2012
Real 12M Deposit
Source: Bank of Thailand’s Business Sentiment Surveys; real interest rates calculated by 12-month expected inflation forecasts
• Growth projection for 2012 is revised down in line with global growth
Growth forecast summary
• Growth projection for 2012 is revised down in line with global growth prospects, which may affect second half’s exports and domestic demand, as well as softened fiscal stimulus.
• For 2013, global economic concerns will continue to affect exports and domestic demand, resulting in lower growth forecast overall., g g
GDP Growth 2011 2012 2013This Inflation Report (Jul 2012) 0.1* 5.7 5.0Last Inflation Report (May 2012) 0.1* 6.0 5.8
*Outturns
16
Heightened risks to growth
• Downside risks increase, as reflected in
Heightened risks to growth
Annual change (%)
GDP Growth Forecast,
the growth fan chart that is skewed downward to a greater degree, given
2525 these factors:1. The euro area economy, which is
the center of the crisis, may slip 15
20
25
15
20
25
Last IR Lower Bound (May12)
Last IR Upper Bound (May12)
, y pinto a deeper recession
2. Asia’s real economy may suffer 5
10
15
5
10
15
from the debt crisis more severely3. For the U.S., several stimulus
measures expiring at end-2012 -5
0
-5
0
Note: The fan chart covers 90 percent of the probability distribution
measures expiring at end 2012 might not be extended, thus resulting in the “fiscal cliff” and
-10-10
Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014
dampened growth momentum17
Inflation forecasts for 2012 and 2013 are revised down Inflation forecasts for 2012 and 2013 are revised down with lower cost and demand pressure
• Cost pressure from oil, raw food, and other commodities is projected to subside temporarily in 2012, before picking up to the previous trend in 2013 p.19
• Demand pressure softens with moderating growth momentum• Inflation and cost expectations remain stable
2011 2012 2013C i fl ti 2 4* 2 2 1 9Core inflation 2.4* 2.2 1.9
(2.5) (2.1)Headline inflation 3 8* 2 9 3 4Headline inflation 3.8 2.9 3.4
(3.5) (3.5)*Outturns
18
Outturns( ) Inflation Report May 2012
Oil price outlookOil price outlookAssumptions on Dubai Crude Oil Price
• Crude oil price falls temporarily USD/Barrel 2010* 2011* 2012 2013
May 12 (base case) 75.5 106.3 115.3 110.0Jul 12 (base case) 75.5 106.3 108.0 110.0
p p yin 2012 given elevated concerns on euro area’s economyJul (base case) 5.5 06.3 08.0 0.0
Jul 12 (high case) -- -- 111.9 124.7Jul 12 (low case) -- -- 104.0 95.3
• But going forward, the price is bound to recover as projected
160
May 12 (base) Jul 12 (base)Jul 12 (high 0.5 SD) Jul 12 (low 0.5 SD)
USD/Barrel previously, due to the impact of Iran’s conflict and political
t i S d S i d 120
110127
100120140
p.18
unrests in Sudan, Syria, and Yemen
105 93
6080
100
*Outturns
Q1 2010
Q1 2011
Q1 2012
Q1 2013
Q1 2014
19
Lower risks to inflation
Downside risks to inflation outweigh upside risks
Downside risks• The global economy may be weaker than expected, resulting in lower oil
and commodity prices• Pass-through from costs to prices may subside with softer demand
Upside risks• Geopolitical events in the Middle East may tense up and lead to shortage
in global crude supply• Minimum wage hikes may impact consumer prices more than assessed
20
Downside risks to core and headline inflation increase, as reflected in the fan charts that are more downward-skewed
Annual change (%)
Headline Inflation Forecast Core Inflation Forecast
Annual change (%)Annual change (%)
4
5
6
4
5
6
Last IR lower bound (May12)
Last IR upper bound (May12)8
10
8
10
Annual change (%)
2
3
4
2
3
4
4
6
4
6
0
1
0
1
0
2
0
2
last IR upper bound (May12)
last IR lower bound (May12)
Note: The fan chart covers 90 percent of the probability distribution
-1-1
Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014-2-2
Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014
21
I Economic and inflation outlookI. Economic and inflation outlook
II Monetary policy stances going forwardII. Monetary policy stances going forward
22
Monetary Policy Committee’s decisionsThe Monetary Policy Committee (MPC) voted to maintain the policy rate at 3 percent per annum in the last two meetings viewing that:
eta y cy ttee s dec s s
3 percent per annum in the last two meetings, viewing that:• Global economic growth weakened while downside risks also escalated• The Thai economy recovered from the flood and resumed its normal conditions• Overall monetary conditions remained supportive for domestic demand growth
- Low real interest rates Robust credit expansion- Robust credit expansion
20%YoY
Jun 12ODCs’ Private Credits
4
Real policy rate remains low% per annum
15
20 Jun 1216.1
+1 2+1.6
+2.5
+3.0
2
3
4
5
10
-0.1
+0.3 +0.3+0.8 +0.8
+1.2
-1
0
1
0Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
-1TH TW KR MY IN ID AU PH CN
Nominal 3.00 1.875 3.00 3.00 8.00 5.75 3.50 5.75 6.00policy rate
Source: Inflation forecast from Consensus Forecast 2012 (Jul 2012 survey) Data as of 3 August 201223
Key issues that need to be monitored closely and are crucial to monetary
Monetary policy outlook
policy deliberations:
• The actual impact of global slowdown on domestic economy, especially on exports and export-oriented production
• The ability of domestic demand and fiscal stimulus in sustaining overall economic momentum
• Inflation pressure associated with minimum wage hikes and labor shortage in certain industries
Monetary policy may help cushion downside risks to growth,especially if the impact of global economic concerns intensifies
24
http://www.bot.or.th/Thai/MonetaryPolicy/Inflation
25
Attached
Detailed summary of forecasts(%YoY) 2554 2555E 2556E
GDP Growth 0.1 5.7 5.0
- Private Consumption 1.3 5.2 3.9
- Private Investment 7.2 14.7 9.1
- Public Consumption 1.1 1.1 5.2
- Public Investment -8 7 10 5 22 0- Public Investment -8.7 10.5 22.0
- Exports of Goods and Services 9.5 6.8 9.3
- Imports of Goods and Services 13.7 10.4 11.1
Current Account Balance (Billion USD)* 12.3 -0.4 0.4
Trade Balance (Billion USD)* 23.5 11.0 13.7
- Value of Exports* 16.4 7.0 10.8
- Value of Imports* 24.7 14.0 10.1
26
Note: E = Expected* Data revision according to BPM6
Attached
Assumptions on Thai trading partners’ GDP growth
May-12
2012
%
2013
6.1
4.85.7
4.5567
May 12Jul-12 6.8
5.56.6
5.1
2.2 1.81.92.4
234
2.31.52.0
1 3
-0 5 0 7-101 1.0 1.5
0.0
1.3
0.5-0.7-21
US EU JP Asia* TPGDP** US EU JP Asia* TPGDP**
N t * W i ht d b j Th i t d ’ h i 2010 (8 A i t i )
27
Note: * Weighted by major Thai trades’ share in 2010 (8 Asian countries) ** Weighted by major Thai trades’ share in 2010 (13 countries)
Source: Projected by Bank of Thailand