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Key developments and outlook Economic growths in 2016 and 2017 remain close to the previous assessment. Better-than-expected merchandise exports and private consumption compensate for weaker-than-expected exports of services and private investment. Headline inflation is projected to gradually rise and return to target band within Q1/2017, but is lower compared to previous assessment due to lower fresh food price. 2015* 2016 2017 GDP growth 2.8 3.2 3.2 (3.2) (3.2) Headline inflation -0.9 0.2 1.5 (0.3) (2.0) Core inflation 1.1 0.7 0.8 (0.8) (1.0) * Outturn, ( ) Monetary Policy Report, September 2016 Risks to growth and inflation increase and tilt more downward, due mainly to the potentially slowerthan-expected recovery of the global economy, uncertainty from US economic policy, as well as the number of Chinese tourists that might be lower than assessed. Monetary policy is conducive to economic recovery and is appropriate to ensure financial stability. 2/17
Trading partners economic forecast remains unchanged, but faces increased uncertainty and more downside risks G3: the US continues to recover, while Japan and the Euro area experience moderate growth. China faces decelerating growth due to ongoing economic reforms to foster macroeconomic stability. Asia shows slow recovery, affected by uncertainty from US trade policy. 90 80 70 60 Jan 2014 Merchandise export value of Asian countries Index, 3 mma sa (Jan 2014 = 100) 130 Taiwan South Korea Malaysia (Oct) 120 Singapore Indonesia Philippines (Oct) 110 Nov 16 100 Jul Jan 2015 Jul Jan 2016 Jul Monetary policy BOJ and ECB: continue their accommodative monetary policy Fed: expected to increase the pace of rate hikes Risks to trading partners economy Risks tilt downward with increased uncertainty from unclear economic policies of the incoming US government, while upside risks include the impact of the US stimulating fiscal measures that could induce more investments. 3/17
Oil price adjusts up along with increased uncertainty Crude oil price increases faster than expected following the oil producers agreement to cut production. Looking forward, the increased oil price would induce more shale oil production and help curb the oil price increase. Increased uncertainty in oil price Oil producers ability to adhere to the agreed production cut (implementation risk) Uncertainty in US energy policy USD/Barrel 120 100 80 60 40 20 0 Sep 16 Dec 16 2557 2558 2559 2560 2561 Oil price projection USD/Barrel 2015* 2016 2017 As of Sep 16 41.0 50.0 50.8 As of Dec 16 41.4 53.5 * Outturn Dubai oil price assumption 4/17
Merchandise export value projection is revised up but continues to face pressure from structural factors and trading partners slow recovery Export value projection increases for products whose prices correlate with oil price. Export value projection improve in some industries that see shifts in production base and growing foreign demand, especially electrical appliances, electronics, and automotive. Exports of other industries expected to slowly recover due to hindrance from structural factors and moderate trading partners demand. Index (2001 = 100) 140 130 120 110 100 90 80 Jan Jul Jan 2014 2015 Electrical Appliance Electronics and HDD Jul Sources: BOT and Office of Industrial Economics Jan 2016 Automotive Rubber Jul % YoY 2015* 2016 2017 As of Sep 16-2.5-0.5-5.6 As of Dec 16-0.6 0.0 * Outturn Maximum capacity by sector Merchandise export value projection Oct 16 5/17
Private consumption grows more than expected partly due to the good Q3/2016 outturn Private consumption gains supports from Higher farm income in terms of price and quantity, even though still lower than past average Better merchandise exports Lower debt service as auto loans from First Car Scheme end Government s stimulus measures, which partly is an intertemporal consumption shifting measure 120 110 100 90 80 70 Jan 2014 Real farm and non-farm income Index, sa (Jan 2014 = 100) Jul Jan 2015 Jul Jan 2016 Farm income Farm income, 3 mma Average non-farm income, 3 mma Sources: National Statistical Office and Office of Agricultural Economics Jul Oct 16 6/17
Exports of service growth is lower than expected following the number of tourists that has been adjusted down Government s measure to curb illegitimate tour operators has reduced Chinese tourists more than previously thought. Number of tourists expected to slow down temporarily during mourning period. 2017 Tourism sector that slowed down in Q4/2016 will recover in 2017, partly with the support of the government s tourism measures and clearer policy direction ahead. Index, sa (Jan 2014 = 100) 300 250 200 150 100 50 0 Jan 2014 Foreign tourists projection Millions 2015* 2016 2017 As of Sep 16 33.6 36.3 29.8 As of Dec 16 32.4 34.1 * Outturn Number of foreign tourists Jul Jan Jul Jan Jul 2015 2016 Total China (27%) Malaysia (11%) Other Asia (28%) Europe exc. Russia (16%) Russia (3%) Note: ( ) share of total number of tourists Source: Department of Tourism Oct 16 7/17
Private investment gains support from government s stimulus but remains moderate and concentrated in only some sectors Overall private investment remains moderate, in line with subdued merchandise exports, slowdown in exports of services, and increased uncertainty in domestic and global economy. Private investment is concentrated in service and utility sectors, e.g. retails and telecommunications, from the growing demand in those sectors. Public-private partnership and government stimulus projects are important contributors to growth in 2017. Private consumption, private investment, and merchandise export volume Value of BOI s promotion certificates issued Index, 4qma sa (Q1/08 = 100) 130 120 110 100 90 80 Q3/16 Private consumption Private investment Merchandise export volume 2008 2009 2010 2011 2012 2013 2014 2015 2016 Sources: National Economic and Social Development Board, calculated by BOT Light industry Mining and metals Chemicals and plastic Agriculture Electrical appliance and electronics Machinery and equipment Services and utility Source: Board of Investment 2014 2015 2016 0 100 200 300 Billion baht 8/17
Government spending continues to be a driving force of the economy. Although 2016 growth is lower than expected, 2017 growth is forecasted to be higher from government s additional projects. Government consumption Outturn in Q3/2016 is lower than expected due to low disbursement rate Transfers towards social welfare expected to be lower due to privatization of healthcare services in order to increase healthcare efficiency Public investment 2016: slightly lower than expected from delays in SOE investment 2017: revised up with support from government s additional projects 1 along with ongoing infrastructure projects 1 Additional projects include Matching Fund project (September 13, 2016) and stimulus project (December 7, 2016) Public spending projection at current prices (calendar year) % YoY 2015* 2016 2017 As of Sep 16 As of Dec 16 As of Sep 16 As of Dec 16 Consumption 4.4 6.0 3.1 6.6 5.9 Investment 25.7 9.4 8.5 11.4 16.1 Total 9.4 6.9 4.5 7.9 8.7 * Outturn 9/17
Economic growth in 2016 and 2017 remains close to previous assessment with some changes in the growth driver % YoY 2015* 2016 2017 As of Sep 16 As of Dec 16 As of Sep 16 As of Dec 16 GDP Growth 2.8 3.2 3.2 3.2 3.2 - Private consumption 2.1 2.7 3.1 2.1 2.6 - Private investment -2.0 1.1-0.6 1.7 1.6 - Government consumption 2.2 3.5 1.1 2.8 3.2 - Public investment 29.8 9.7 9.3 7.5 11.9 - Exports of goods and services 0.2 1.7 1.9 1.0 0.6 - Imports of goods and services -0.4-2.7-2.3 2.2 2.4 * Outturn 10/17
Uncertainty and downside risk increase GDP growth forecast Note: Fan chart covers 90% of the probability distribution Downside risks Trading partners growth might be lower due to uncertainty from US trade policy and financial risks in China Number of tourists might be lower as a result of measures to curb illegal tour operators Upside risks Effect of government s stimulus measures might be larger Effect of US fiscal stimulus that could lead to higher growth in the US 11/17
Headline and core inflation forecasts are revised down due to lower cost of production Demand-side inflationary pressure remains the same Cost-side inflationary pressure lower than expected, from rapid downward adjustment of fresh food price as the drought eased up that outweighs increase in energy prices Headline inflation expected to return to the inflation target band in Q1/2017 % YoY 3 2 1 0-1 -2-3 Jan 2014 Contribution to headline inflation Inflation projections 2015* 2016 2017 Headline inflation -0.9 0.2 1.5 (0.3) (2.0) Core inflation 1.1 0.7 0.8 (0.8) (1.0) * Outturn, ( ) Monetary Policy Report, September 2016 High raw food price due to drought Nov 16 Jul Jan 2015 Jul Jan 2016 Jul Raw food price (15.51%) Energy price (11.40%) Core inflation (73.09%) Headline inflation Source: Ministry of Commerce, calculated by BOT 12/17
Risks to inflation forecasts skew more downward following risks to economic growth Headline inflation forecast Core inflation forecast Note: Fan chart covers 90% of the probability distribution 13/17
Monetary policy remains conducive to the economic recovery On November 9 and December 21, 2016, the MPC voted unanimously to maintain the policy rate at 1.50 percent (1) Thai economy continues to recover, though with more downside risks. Headline inflation is expected to slowly rise to the target band. Monetary conditions remain accommodative and conducive to economic recovery. (2) Looking forward, fragile global economic recovery and uncertainties regarding the direction of economic and monetary policies of major economies might have significant impact on trading partners economic prospect and Thai exports. (3) Financial stability remains sound despite some pockets of risks, such as the deterioration in loan quality of some business sectors and the search for yield behavior. The MPC viewed that monetary policy should remain accommodative, and stands ready to utilize available policy tools to ensure that monetary conditions are conducive to the economic recovery, while ensuring financial stability. 14/17
Key issues monitored by the MPC Risks to global economic recovery US trade policy and its implication to global trade and Thai economy Development of European politics Financial concerns in China and Europe Effects of measures to curb illegal tour operators Financial stability risks Deterioration in loan quality of some business sectors Search for yield behavior in the prolonged low interest rate environment, especially investments in riskier assets Thai baht s movement Thai baht depreciated against the US dollar, but to a lesser extent compared with trading partners currencies. This might not be beneficial to Thailand s economic recovery. 15/17
Forecast summary as of December 2016 2015* 2016 2017 GDP growth 2.8 3.2 3.2 (3.2) (3.2) Headline inflation -0.9 0.2 1.5 (0.3) (2.0) Core inflation 1.1 0.7 0.8 (0.8) (1.0) * Outturn ( ) Monetary Policy Report, September 2016 16/17
Website https://www.bot.or.th/english/monetarypolicy /MonetPolicyComittee/MPR/Pages/default.aspx 17/17
Attachment Forecasts in the Monetary Policy Report, December 2016 % YoY 2015* 2016 2017 GDP Growth 2.8 3.2 3.2 - Private Consumption 2.1 3.1 2.6 - Private Investment -2.0-0.6 1.6 - Government Consumption 2.2 1.1 3.2 - Public Investment 29.8 9.3 11.9 - Exports of Goods and Services 0.2 1.9 0.6 - Imports of Goods and Services -0.4-2.3 2.4 Current Account Balance (Billion USD) 32.1 42.2 26.9 - Value of Merchandise Exports -5.6-0.6 0.0 - Value of Merchandise Imports -10.6-5.0 7.8 * Outturn 18/17
Attachment Forecast assumptions 2015* 2016 2017 Sep 16 Dec 16 Sep 16 Dec 16 Dubai oil price (USD per barrel) 50.8 41.0 41.4 50.0 53.5 Non-fuel commodity prices (% YoY) -23.1-8.7-5.9 2.8 3.2 Fresh food prices (% YoY) -10.4 5.7 8.6 2.3 3.0 Public expenditure (calendar year) Government Consumption (billion baht)** 2,334 2,474 2,405 2,637 2,547 Public investment (billion baht)** 864 946 938 1,054 1,089 Fed funds rate (% year end) 0.38 0.63 0.63 1.13 1.38 Trading partners GDP growth (% YoY) 3.3 2.9 3.0 3.1 3.1 Regional currencies per USD (excl. RMB)*** 150.7 153.3 154.5 156.3 160.3 Note: * Outturn ** Includes spending on the Water Management and Infrastructure Investment plans *** Higher value indicates currency depreciation against the USD 19/17
Attachment Assumption on trading partners GDP growths % YoY Weight (%) 2015* 2016 2017 Sep 16 Dec 16 Sep 16 Dec 16 United States 14.9 2.6 1.5 1.6 2.2 2.2 United Kingdom 2.5 2.3 1.6 2.0 0.6 0.8 Euro 10.0 1.6 1.6 1.6 1.2 1.1 Japan 13.6 0.6 0.5 1.0 0.9 1.1 China 15.7 6.9 6.5 6.6 6.3 6.3 Asia** 37.4 3.5 3.2 3.3 3.5 3.5 Total*** 100 3.3 2.9 3.0 3.1 3.1 Note: * Outturn ** Weighted by shares of Thailand s major trading partners in 2014 (7 Asian countries including Singapore (6.5%), Hong Kong (7.9%), Malaysia (8.0%), Taiwan (2.5%), Indonesia (5.9%), South Korea (2.8%), and Philippines (3.7%)) *** Weighted by shares of Thailand s major trading partners in 2014 (13 countries). The table excludes other countries with small trade shares. 20/17