Thai economy in July 2008 expand continuously, supported by strong external demand through historically highest level of export, while domestic demand also grew vigorously. External economic stability remained robust while internal economic stability continuously faced some risks from increasing inflationary pressure.Nevertheless, inflationary pressure expected to subside in the near future, due to the effect from the six economic assistance programs (announced on 15 July 2008) and the declining trend of oil price. 1. Private consumption in July 2008 expand continuously. Consumption indicator for durable goods as shown by the growth of motorcycles sales in July accelerated to 16.3 percent (y-o-y), the highest rate in three years, due to rising farm income from people in the rural area following increasing agricultural prices. This is coincided with the passenger car sales, which continue to expand significantly at 27.5 percent (y-o-y) in July. Consistently, the import volume of consumer goods also continued to expand well at 40.7 percent (y-o-y) in July. Moreover, consumption indicator from real-term value-added tax collection grew strongly at 23.3 percent (y-o-y) in July. Meanwhile, the July Consumers’ Confidence Index , which is the leading consumption indicator, also expand slightly to 71.8 points from 70.8 points in June, due mainly to the effect from the six economic assistance programs and the declining trend of oil price. 2. Private investment in July 2008 started to recover significantly. Investment indicator for equipment and machinery measured from import volume of equipment and machinery increased by 28.4 percent (y-o-y), picking up robustly from the growth rate of 8.4 percent (y-o-y) in June. The strong acceleration of the import volume of equipment and machinery is partly due to the import of special items, i.e. the oil driller machinery. Meanwhile, the investment indicator for construction-related investment from real-estate tax collection also increased vigorously at 43.0 percent (y-o-y) in July 2008, thanks to recent tax measure to lower real estate taxes in order to stimulate real estate investment. However, the investment indicator from commercial car sales in July contracted at —29.3 percent (y-o-y) caused mainly by slow down in pick-ups and trucks sales. 3. Fiscal indicators in July 2008 showed that the net tax revenue collected amounted to 105.5 billion baht, increasing at 22.1 percent (y-o-y) in July. This high growth rate is due to the low base in July 2007, from 6.9 billion baht Value-Added Tax transfer by central government to local authorities. Without this transfer, the net tax revenue collection in July 2008 will increase at the rate of 9.8 percent (y-o-y). Meanwhile, the revenue from the 3 main tax collective departments expanded strongly at the rate of 14.4 percent (y-o-y), reflecting the overall economic condition that still expand continuously and the increasing in price level, which led to the higher VAT and import duty receives. Consequently, the July income-based tax revenue increased at 8.6 percent (y-o-y) following the higher corporate sector’s income, while the revenue from consumption-based tax revenue increased by 33.3 percent (y-o-y) following the high growth rate of import value. On the other hand, total government budget disbursement in July amounted to 138.8 billion Baht, contracting at -5.3 percent (y-o-y) due to the high-base from last year. Disbursement of current expenditure amounted to 115.9 billion baht, slightly contracted at —3.0 percent (y-o-y), while capital expenditure disbursement was 18.6 billion baht, contracted at —20.2 percent (y-o-y), due to the high-base effect from the same period of last year, when large capital expenditure transfer to local authorities took place. Meanwhile, during the first 10 months of fiscal year 2008 (October 2007 - June 2008), the total expenditure disbursed amounted to 1,359 billion Baht, expanding at 4.4 percent (y-o-y), or 76.4 percent of the Fiscal Year 2008 budget expenditure framework. For the whole of Fiscal Year 2008, the fiscal year budget expenditure is expected to meet the target disbursement rate of 94.0 percent of the Fiscal Year 2008 budget expenditure framework. 4. Export value in July 2008 grew at the historically record at 43.9 percent (y-o-y), accelerated from the June growth rate of 27.4 percent (y-o-y). In USD terms, the export value of goods in July amounted to the highest level of USD 17.0 billion. This high export value growth rate comprised of the 24.2 percent (y-o-y) expansion in export volume and the 15.9 percent (y-o-y) expansion in the export price. This strong overall export performance was the result of the expansion in almost all categories of export goods, especially fuel, agricultural products, jewelry and industrial goods like electrical appliances and vehicles. Meanwhile, considering the dimension of export market, it is evident that the high export growth came from all export markets, especially new emerging export markets such as Australia continent and Vietnam. On the other hand, import value in July 2008 rose at historical level as well, recorded at USD 18.0 billion and expanding by 55.1 percent (y-o-y), accelerated from the previous month’s growth rate of 30.7 percent (y-o-y), and comprised of the 30.2 percent (y-o-y) expansion in import volume and the 19.1 percent (y-o-y) expansion in the price of goods imported. The historically high import level was due to expansion in all categories of import goods, i.e. fuel, consumer goods, capital and machinery, and raw materials. The acceleration of raw materials imported implies that Thai economy’s production sector may vigorously grow in the near future. However, the greater amount of import value compared to the export value resulted in the deficit trade balance of USD —1.0 billion in July. 5. On the supply side, economic indicators in July 2008 showed that agricultural sector and manufacturing sector expanded well, while the service sector from tourism expanded with a declining trend due to the effect of high oil price. Indicator from manufacturing sector as indicated by Manufacturing Production Index (preliminary) in July grew at 9.8 percent (y-o-y), accelerated from previous month’s growth rate of 8.8 percent (y-o-y). This growth was mainly supported by the growth of export manufacturing such as electronics, electrical appliances, automobiles and garment. On the agriculture sector, the indicator still expanded well. Agricultural Production Index grew by 11.7 percent (y-o-y), from the expansion of the major crops production such as rice (second crop), rubber and tapioca. This is due to the high global gricultural prices, which then motivate the farmers to accelerate their harvests. On the service sector in tourism continued to expand, but at a declining trend. The continuously high amount of in-bound tourists to Thailand in July was recorded at 1.3 million persons, expanded at 9.3 percent (y-oy), but decelerated slightly from the growth of 11.7 percent (y-o-y) in June. This is due to the effect of high oil price, which leads to higher prices of air fare and fuel surcharge, and subsequently affected number of in-bound tourists. 6. Overall economic stability remained strong. For external stability, international reserves at the end of July stood at USD 104.1 billion, which remained more than 4 times greater than short-term external debts. Internal stability is facing higher risks from increasing inflationary pressure. Headline inflation in July increased to 9.2 percent (y-o-y), from 8.9 percent (y-o-y) in June, due to continued rising oil price and food-related prices. However, it is expected that the inflationary pressure will be subsided in the near future as result of the six economic assistance programs, and the declining trend of oil price. Unemployment rate in June remained low at 1.2 percent of the total labor force. Public debt to GDP as of June was at 35.8 percent, remained well below the 50 percent public debt ceiling under the Fiscal Sustainability Framework. Source: Fiscal Policy Office / www.fpo.go.th