1. Economic and inflation outlook considered by the MPC. Key developments to monitor for monetary policy going forward 1 1. Economic and inflation outlook considered by the MPC. Key developments to monitor for monetary policy going forward 3 Forecast summary for 1 and 13 11 1 13 GDP Growth.1*..8 (.7) (.) [.9] [.] Core Inflation.*..1 (.) (1.8) [.] [1.7] Headline Inflation 3.8* 3. 3. (3.) (3.) [3.] [.9] ( ) as of MPC March 1 [ ] as of MPC uary 1
Three main factors leading to the forecast revision 1. The global economy continued to improve, with reduced downside risks. The Thai economy recovered faster than expected 3. Inflationary pressure is likely to rise further in 1 and 13, driven by both cost and demand factors Looking ahead, the balance of risks for the Thai economy starts to shift from growth to inflation Risks from the global economy decrease slightly from the previous assessment Recovery prospects in the US U.S. strengthen th with support from consumption Risks from the euro area decline given these developments: Greece secured the approval for the second loan and made 7 progresses on debt restructuring ECB s Long-Term Refinancing Operations (LTROs) helped 3 ease short-term liquidity constraints Market confidence on the euro area 1 economy improved EU Bank CDS spreads* ( yrs) Subordinated Senior 11 Apr 11 Jul 11 Oct 11 1 Apr 1 * Including CDS of commercial banks in the euro zone Source: Bloomberg Baseline assumptions on trading partners growth remain unchanged, but with lower risks from the U.S. and the euro area (% YoY) 11 1 Base Case 1 13 May 1 1 May 1 US 1.7.1..3.3 Euro 1. -. -. 1. 1. Japan -.9 1.7 1.8 1. 1. Asia* (China) 7. 9..1 8..1 8..9 8.8.8 8.8 Total**..8.8.. 1 Worse Case 1 13 May 1 1 May 1.7 1.3.9.8-1.8-1..1.1.9 1.1.7.7 Note: * Weighted by major trading partners shares in 1 (8 Asian countries) ** Weighted by major trading partners shares in 1 (13 countries) Asia = China (9.3%) + Singapore (1.3%) + Hong Kong (17.9%) + Malaysia (1.%) + Taiwan (.%) + Indonesia (1.%) + South Korea (.9%) + Philippines (.7%).8 7.1. 7.3.7 7..7 7. 3. 3.8.. 7. The Thai economy recovered faster than expected Index (Sep 11 = 1), 3mma SA* 1 Before Flood After Flood Mar 1 P 11 PII PCI 1 XGR MPI 9 8 7 Private Investment Index (PII) Private Consumption Index (PCI) Merchandise Exports (XGR) Manufacturing Production Index (MPI) -11 May-11 Sep-11-1 * Seasonally adjusted, 3-month moving average Source: Bank of Thailand Production and Investment picked up faster than expected to meet demand at home and abroad Private consumption surged above the preflood level since February on the back of pent-up demand and production recovery Exports continued to improve, but still remained below the pre-flood level due to production constraints in hard disk drives and integrated circuits 8
Manufacturing production recovered firmly and is projected to return to the pre-flood level in late 1 Q Four industries that were severely hit by floods* Recovered faster than expected due to 1) the pick-up in machinery and equipment imports and ) the accelerated production by unaffected firms to meet existing demand Other industries especially domestic-oriented ones Returned normal already, and are likely to grow further on the back of domestic demand Index 1 = 1 1 MPI: Total MPI: Major Industries MPI: Other Industries 1 8-11 Apr-11 Jul-11 Oct-11-1 * The four industries include vehicles, hard disk drives, integrated circuits, and electrical appliances Source: Office of Industrial Economics 9 Looking forward... 1 Private consumption and investment are poised to recover firmer than assessed, and will continue to drive economic growth going forward Key supporting factors: High pent-up demand Damage replacement and repair Favorable income prospects Private sector s improved confidence Stimulus measures from government and banks Conducive monetary conditions Business Sentiment Diffusion Index (higher than = better prospects) 7 3-Month Expected Investment Sentiment Index 3 8 9 3-Month Expected Domestic Order Books Index 1 11 % Real Interest Rates 1-8 Real 1-M Deposit 9 1 Real MLR Source: Bank of Thailand s Business Sentiment Survey; real interest rates calculated by 1-month expected inflation forecasts 11 1. 9. 3. -.1 1 11 Fiscal spending from budget and water management projects will be crucial for growth in the period ahead Government s budget will continue to be in deficit in fiscal years 1 and 13, mainly from spending on infrastructure investment and stimulus measures such as the rice pledging program and the schemes for first-time time car and home buyers Spending on water management projects, for a total sum of 3 billion baht, will hl help sustain fiscal stimulus going forward. The majority of the sum is anticipated ii to be reimbursed in 13. 1
Exports will improve more firmly after production returns normal, and will contribute more to growth along with domestic demand next year Foreign order books and export conditions (3-month expected) stayed above since November 11 Difference Index Foreign order books Export conditions 7 3 1 Jul Jul Jul Jul Jul 7 8 9 1 11 Source: Bank of Thailand s Business Sentiment Survey 1 Book to bill ratio for semiconductors in the U.S. rose above 1. for the first time since September 1 Billings Bookings Book to Bill Ratio (RHS) Million USD Ratio, Mar 1.13 1. 1, 1. 1. 1,.8 8.... 8 9 1 11 1 Source: SEMI Growth forecast summary Growth projection is revised up for 1 in line with robust recovery in production and domestic demand Growth momentum is likely to sustain well into 13, with exports recovering more firmly GDP Growth 11 1 13 As of May 1.1*..8 As of Mar 1.1*.7. As of 1 1..9. 13 1 Lower risks to growth projection 3. Inflation forecast is revised up due to rising cost and demand pressure Last Lower Bound (1) Last Upper Bound (1) 1 1 GDP growth forecast Annual percentage change (%) 1 1 The fan chart remains downward-skewed but to a lesser degree, reflecting lower downside risks due to: 1. Firmer domestic recovery. Improved global economic - - -1-1 Q1 1 Q1 11 Q1 1 Q1 13 Q1 1 Note: The fan chart covers 9 percent of the probability distribution. conditions 1 Cost pressure rises in line with crude oil price outlook p.17 Demand pressure builds up with post-flood recovery strength, which allows for a greater pass-through from costs to prices Inflation and cost expectations continue to edge higher p.18 11 1 13 Core Inflation.*..1 (.) (1.8) [.] [1.7] Headline Inflation 3.8* 3. 3. (3.) (3.) [3.] [.9] ( ) MPC meeting on March 1 [ ] MPC meeting on uary 1 1
USD/Barrel 1 1 Dbi Dubai crude price is likl likely to remain elevated td given the ongoing conflicts between Iran and Western countries Dubai Crude Oil Price Million Barrels/day 8 OPEC Spare Capacity year avg. spare capacity =. MBD Inflation and cost expectations for the next 1 months continued to edge higher Inflation expectations over the next 1 months Expected costs over the next 1 months Source: Bloomberg 7 8 9 1 11 1 7 8 Source: Bloomberg and BOT 's calculation 9 1 Assumptions on Dubai Oil Price $ US/Barrel 1* 11* 1 13 As of 1 (baseline) 7. 1.3 13.3 1 As of May 1 (baseline) 7. 1.3 11.3 11 As of May 1 (high case) -- -- 18. 139. As of May 1 (low case) -- -- 18.9 9. p.1 17 % <% -% -% >% Median 1 1.8. 8.. 3. Feb 1 7.8.8 33.. 3. Mar 1.8. 3..1 3.7 Source: Bank of Thailand s Business Sentiment Survey % <3% 3-% -9% >9% Median 1 1. 7. 7.8.. Feb 1 9. 79. 7. 3.7. Mar 1 8. 77. 1... p.1 18 1 Higher risks to headline inflation Headline inflation forecast Annual percentage change (%) The fan chart is skewed to the 1 upside to a greater degree, 8 8 reflecting higher upside risks from: 1. Robust domestic recovery, which may allow for a greater price pass-through. Rising inflation expectations - last lower bound (1) - last upper bound (1) - - Q1 1 Q1 11 Q1 1 Q1 13 Q1 1 Note: The fan chart covers 9 percent of the probability distribution. 3. Greater upside risks from crude oil prices 19 Higher risks to core inflation Core inflation forecast Last lower bound (1) Last upper bound (1) Annual percentage change (%) The fan chart is skewed to the upside to a greater degree, reflecting higher upside risks from: 3 3 1. Robust domestic recovery, 1-1 -1 Q1 1 Q1 11 Q1 1 Q1 13 Q1 1 Note: The fan chart covers 9 percent of the probability distribution. 1 which may allow for a greater price pass-through. Rising inflation expectations
Key developments to monitor for monetary policy going forward 1. Economic and inflation outlook considered by the MPC. Key developments to monitor for monetary policy going forward External factors Political developments in the euro area and their implications on the resolution of the sovereign debt crisis Internal factors Pass-through from rising costs to consumer prices Psychological impact of inflation on consumer confidence Government s control measures on consumer prices such as transportation fees and energy gyprices Businesses adjustments to cope with rising wage and energy costs, especially among SMEs 1 http://www.bot.or.th/thai/monetarypolicy/inflation 3 Detailed summary of forecasts (%YoY) 11 1 E 13 E GDP Growth.1..8 - Private Consumption 1.3.7. - Private Investment 7. 1.3 1. - Public Consumption 1..9. - Public Investment -87-8.7 17.9 17.77 - Exports of Goods and Services 9. 7. 11. - Imports of Goods and Services 13. 11.7 1. Current Account (Billion USD)* 1.3 -.1 -.9 Trade Balance (Billion USD)* 3. 9.8 1. - Value of Exports* 1. 9. 1. - Value of Imports*.7 17. 1. Note: E = Expected * Data revision according to BPM