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1 Sep 2006

Thai Economy

Update on Economic Figures: Higher Export Prices offset Decelerating Volume (Business Brief No. 1854)

The latest economic figures (July 2006) of the Bank of Thailand indicate that hikes in export prices are a key factor that has helped boost the total export growth, despite decelerating export volume. Though the year-on-year growth of imports and consumption of the private sector did increase in July, mostly this was the result of a low base of comparison with the same period of last year. But in reality, the import level increased only slightly over June, while consumption fell from the preceding month. For the trend in August 2006, KASIKORN RESEARCH CENTER (KResearch) projects that the overall investment climate and consumption are likely to remain pressured by the situation on the confidence of the private sector, even though the average oil price dropped in August. Meanwhile, exports may slow due to a comparison with the high base of August, last year.
With regard to the trend for economic growth between 2006 and 2007, KResearch projects that the GDP growth rate in Q2/2006 will drop to 5.0 percent from 6.0 percent in Q1/2006, and a further slowdown to 3.0-3.5 percent in the second half of 2006, down from 5.5 percent in the first half, sending the annual growth rate of 2006 to 4.0-4.5 percent. As for the economic outlook in 2007, KResearch maintains its earlier projection at 3.4-4.5 percent. The dominant factors will remain political uncertainty, which will affect state budgetary disbursements, as will the cooling in world major economies, in particular the US, which will affect Thailand's exports next year. However, inflation is expected to ease in 2007, mainly as a result of the base effect. Headline CPI Inflation is forecast at 3.3-3.8 percent next year, against 5.0 percent, this year. The receding inflation rate, together with the likelihood that the Fed (Federal Reserve) will cut interest rates, spurs the anticipation that the BOT may consider leniency in raising interest rates in 2007, and follow the Fed's rate cuts, specifically if the national economy slips to a more-than-expected setback.

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Thai Economy