Thai economy in June and 2nd quarter of 2008 continued to expand well, supported by strong external demand through strong net export, while domestic demand continued to grow moderately despite slight decelerating trend in investment growth which arises from political uncertainty, rising costs following rising price level.External economic stability remained robust while internal economic stability faced some risks from increasing inflationary pressure.1. Private consumption in June and 2nd quarter of 2008 continued to expand well. Consumption indicator fromreal-term value-added tax collection in June 2008 grew at 7.6 percent (y-o-y), resulting in a growth of 9.4percent (y-o-y) in the 2nd quarter. This positive growth is consistent with import volume of consumer goodswhich continued to expand well at 34.2 percent (y-o-y) and 28.4 percent (y-o-y) in June and 2nd quarter of 2008, respectively. Consumption indicator for durable goods as shown by passenger car sales also grew strongly at 29.3 percent (y-o-y) in June and 24.8 percent (y-o-y) in 2nd quarter of 2008. Moreover, sales of motorcycles continued to expand well at 7.1 percent (y-o-y) in June and 5.4 percent (y-o-y) in 2nd quarter of 2008, improving from the previous quarter which grew at 3.0 percent (y-o-y) as a result of rising income from people in the region following rising farm income. However, consumers’ confidence index in 2nd quarter, which is the leading consumption indicator, declined slightly to 71.9 points from 72.5 points in the 1st quarter of 2008 due mainly from political uncertainty and high level of oil prices.2. Private investment in June and 2nd quarter of 2008 continued to expanded moderately but showed sign ofslow down from 1st quarter of 2008 particularly from investment indicator for equipment and machinery measured from import volume of equipment and machinery expanded at 8.4 percent (y-o-y) and 10.1 percent(y-o-y) in 2nd quarter, declining from the previous quarter which grew at 31.3 percent (y-o-y). This is consistent with investment indicator from commercial car sales in June and 2nd quarter of 2008 which contracted at —20.9 percent (y-o-y) and —5.6 percent (y-o-y), respectively, which were mainly due to slow down in pick-ups and trucks sales, reflecting overall slow down in investment trend. Nevertheless, indicator for construction-related investment as measured from real estate-tax collection in June continued to expand strongly at 25.9 percent (yo-y), and 29.3 percent (y-o-y) in June and 2nd quarter of 2008, respectively, resulted from real estate tax reduction measure by the government in order to stimulate the real estate sector. This is consistent with domestic cement sales which rebounded to a growth of 3.5 percent (y-o-y) in May after 17 months of 29 July 2008 consecutive contractions.3. Fiscal indicators in June and 2nd quarter of 2008 showed increasing tax revenue collection expanding at 3.7 percent (y-o-y) in June and 12.1 percent (y-o-y) in 2nd quarter, reflecting the general state of the economy which continued to expand well. Revenue from income-based tax grew at 3.7 percent (y-o-y) in June and grew at 16.2 percent (y-o-y) in 2nd quarter of 2008, increasing from the previous quarter which grew at 12.2 percent (y-o-y) reflecting the general level of personal and corporate income which continued to expand well. Consumptionbased tax expanded at a high level of 16.0 percent (y-o-y) and 15.8 percent (y-o-y) in June and 2nd quarter of 2008 respectively as a result of rising price level and expanded consumption. Total government budget disbursement throughout the first 9 months of fiscal year 2008 (October 2007 - June 2008) amounted to 1,220.1 billion Baht, expanding at 5.7 percent (y-o-y). This consists of current year budget which amounted to 1,134.0 billion Baht, or 68.3 percent disbursement rate from Fiscal Year 2008 budget framework (1,660.0 billion Baht) and carry-over budget which amounted to 86.0 billion Baht. For Fiscal Year 2008, the Ministry of Finance expects the budget expenditure to meet the target disbursement rate of 94.0 percent of the Fiscal Year 2008 budget expenditure framework which would have supportive role in stimulating the economy while private sector spending has not yet fully recovered.4. Export in June and 2nd quarter of 2008 expanded very robustly. Export value of goods in USD terms in Juneand 2nd quarter of 2008 were recorded at USD 16.3 and USD 45.5 billion respectively, expanding by 27.4 percent (y-o-y) and 25.2 percent (y-o-y) respectively. The main reason for such strong growth in export value came from high level of export price growth of 14.3 percent (y-o-y) in June and growth of 12.5 percent (y-o-y) in 2nd quarter, particularly export price in agricultural sector which grew at 45.8 percent (y-o-y) in 2nd quarter. Export volume grew at 11.5 percent (y-o-y) in June and 11.3 percent in 2nd quarter, accelerating from previous quarter which grew at 10.0 percent (y-o-y) mainly from to emerging export markets such as China, Singapore, Hong Kong, Malaysia and the Middle East countries. Import in June and 2nd quarter of 2008 rose substantially which was due mainly to rising oil price while import volume growth decelerated following a slow down in domestic spending. Import values in June and 2nd quarter of 2008 were recorded at USD 15.6 and 45.4 billion respectively, expanding by 30.7 percent (y-o-y) and 29.7 percent (y-o-y), respectively. Trade balance in June rebounded to a surplus of USD 0.6 billion, resulting in a small surplus of USD 0.1 billion in the 2nd quarter compared to a trade balance deficit of USD —1.2 billion in the 1st quarter.5. On the supply side, economic indicators in June and 2nd quarter of 2008 showed that agricultural sector,manufacturing sector and service sector from tourism expanded well. Indicator from agricultural sector continued to expand well, particularly Agricultural Price Index grew by 36.4 percent (y-o-y) and 38.2 percent while Agricultural Production Index (API) in June and 2nd quarter of continued to grow at 9.5 percent (y-o-y) and 8.5 percent (y-o-y) respectively. Service sector as indicated by tourism sector continued to expand strongly as percent (y-o-y) from June 2007 and a growth of 14.9 percent (y-o-y) from 2nd quarter of 2007 as the number of tourists from ASEAN countries, Europe and US grew at a high level. Indicator from manufacturing sector as indicated by Manufacturing Production Index (preliminary) in June and 2nd quarter grew at 8.7 percent (y-o-y) and 9.4 percent (y-o-y), respectively. These growths were mainly supported by manufacturing for exports such as electronics, automobile which continued to expand well, however manufacturing for domestic market has shown sign of slow down.6. Overall economic stability remained strong. For external stability, international reserves at the end of June stood at USD 105.7 billion, which remained more than 4 times coverage over short-term external debts. Internal stability is facing higher risks from increasing inflationary pressure. Headline inflation in June and 2nd quarter 2008, remained at 8.9 percent (y-o-y), and 7.6 percent (y-o-y), respectively due to continued rising oil price and foodrelated prices. Unemployment rate in the first 2 months of 2nd quarter 2008 remained low at 1.5 percent of the total labor force. Public debt to GDP as of May 2008 was at 36.1 percent, remained well below the 50 percent public debt ceiling under the Fiscal Sustainability Framework. Source: Fiscal Policy Office / www.fpo.go.th