* The Thai economy grew by 4.2 percent in Q4/2006, softened further from 6.1, 5.0 and 4.7 percent growth in the previous respective quarters. Overall, 2006 registered 5.0 percent growth, higher than 4.5 percent in 2005. The better performance of the economy in 2006 was driven primarily by net export of goods and services which outperformed that in 2005, and thus weathered the domestic demand-led slowdown. The quarterly growth path confirmed this slowing trend. * The economic stability remained in check. Inflationary pressure subsided as Q4 saw an inflation rate of 3.3 percent, down from 3.6 percent in Q3 and 5.9 percent in H1. Lower oil prices, baht appreciation, and softened domestic demand helped contain inflation. The headline inflation rate averaged at 4.7 percent for the year, comparable to 4.5 percent in 2005. Unemployment rate was 1.51 percent, while current account was in surplus of 3.2 billion USD. * Interest rates remained constant in Q4 following a continued increase since H2/2005. Deposits expanded at a slower pace. Meanwhile credit expansion to most sectors decelerated and thereby liquidity remained high. Thai baht appreciated against the USD throughout most of Q4, driven by large current account surplus together with capital inflows into securities and bond markets. The 30 percent reserve requirement imposed on short-terms capital inflows led baht to depreciate only in a brief period. * Consumption of petroleum products declined by 2 percent in spite of 5 percent economic expansion. Compared with the increase in petroleum consumption of 8.0 percent and 1.2 percent in 2004 and 2005, respectively, this improvement implied a higher energy-efficiency. * The 2007 economy is forecast to grow 4.0-5.0 percent The economic constraints in 2007 will be primarily the limited potential for export growth while the recovery of investment will not be full-fledged. Supportive factors for growth in 2007 include declining interest rates, lower oil prices and inflation which shall stimulate private consumption and investment. In addition, a larger planned government budget and SOEs' investment plan than in 2006 is expected to provide cushion for the economy should the targeted disbursement be materialized. However, exports and tourism are likely to expand at a slower pace than in 2006. * Economic stability in 2007 will remain strong. Inflation rate of 2.5-3.0 percent, a surplus current account of approximately 1.0-1.5 percent of GDP, and low unemployment rate of 1.5-2.0 percent, are expected. 1. Economic Performance in Q4 and the year 2006 1.1 The Thai economy in the fourthquarter of 2006 expanded by 4.2 percent, slowing down from thefirst three quarters. However, overall economic growth in 2006 reached a favorable rate of 5.0 percent, higher than 2005, supporting by a remarkable export performance while import export performance while import the slowdown in domestic demand. Highlight (1) Thai economy in the fourth quarter grew by 4.2 percent, slowing down from 6.1, 5.0 and 4.7 percent in the first three quarters. This was due to a significant slowdown in private consumption and investment following interest rate lifting and rising real interest rates, and high oil prices. Meanwhile consumers and businesses' confidence remained low. Consumer credits in the fourth quarter grew by 8.1 percent, below 9.7 percent of the first three quarters which mostly are credits for dwellings and hire purchase. Government expenditure declined due to a delay in passing FY2007 government budget act. However, exports still showed a healthy expansion, while imports declined following a slowdown in investment and consumption. All in all, net exports remained key engine of growth in the fourth quarter. - Private consumption and investment in the fourth quarter grew by 2.5 and 2.3 percent respectively, continuing the downtrend from the first three quarters. In the first three quarters, private consumption expanded by 3.9, 3.3 and 2.8 percent respectively. Private investment grew by 5.3, 6.4 and 3.8 percent in those three respective quarters. Government expenditure in real term declined by 4.2 percent, while public investment rose by 2.5 percent. - Exports showed strong growth and still served as a key driving force, while imports decelerated sharply. Export value was 33,981 million US dollar, expanded by 19.7 percent. This was as a result of the upturn of electronics cycle and new product and technology development especially electrical appliances that induce higher exports of electrical appliances in the latter half of the year following the market demand. Import value was 31,258 million US dollar, increased by 7.2 percent slowing down from 12.2 percent in the third quarter. - The slowdown was seen in all commodities, in particular imports of capital goods that dropped by 3.4 percent. Decline of capital goods imports were largely seen in electrical machinery and parts and vehicles and parts by 9.6 and 0.8 percent respectively. A rise in exports and a slowdown in imports resulted in a trade surplus of 2,723 million US dollar and a current account surplus of 3,582 million US dollar. - Production sector In the fourth quarter, the agricultural sector grew only by 0.9 percent due mainly to flood impacts in several areas exacerbating crops and other vegetable and fruits. Meanwhile, chicken production slowed down as a result of the bird flu since July. Non-agricultural sector expanded by 4.6 percent, about the same rate as in the third quarter. Manufacturing and almost all services sectors grew at constant rate. Construction sector, however, decelerated in response to rising interest rate in earlier period which soften demand for residential. In addition, financial sector also slowed down as a result of moderate credit expansion and smaller gap between lending and deposit rates. (Continue to).../(2) Overall, the..