Slowdown on the cards

Economic indicators in July suggest an economic slowdown is on the way, led largely by a decline in exports on the back of a slowing global economy, but bank lending has risen sharply, the Bank of Thailand said. Meanwhile, Asia-Pacific Economic Cooperation (Apec) finance ministers have called on member states to use public spending to boost domestic demand. 

The negative impacts of the global slowdown on the Thai economy increased in July, BOT director for the domestic economy Methee Supapong said yesterday. 

The impact was seen in exports and manufacturing for the export market, he said. 

However, private spending and investment continue to expand, and government stimulus measures and high liquidity have contributed to an expansion of production for the domestic market.

“Private spending has driven the economy, providing a cushion from global impacts to some extent,” Methee said.

He said bank lending rose 16.5 per cent year on year in July, compared with a 16.1-per-cent rise in June. 

Consumer loans rose 17.2 per cent and commercial lending increased 15.5 per cent. These figures point to growth in consumption and investment, the BOT official said. 

“The central bank has closely monitored bank lending in some high-growth sectors such as consumer loans, but [this type of lending] was boosted by the first-car ownership scheme; when the tax incentive comes to an end, the growth rate of car-hire purchase loans will return to normal,” Methee said. 

Relatively low interest rates have also boosted consumption, but the central bank has not yet seen evidence that the low-interest environment will lead to instability in the financial system, he said. 

 

Rise in PCI 

The Private Consumption Index (PCI) increased 7 per cent year on year after increases in value-added tax collection and imports of consumer goods, as well as continued growth in domestic automobile sales due to large pent-up demand and the first-car scheme. Meanwhile, the Private Investment Index (PII) grew by 19.5 per cent year on year after growth of machinery and equipment investment due to investment in commercial cars and imports of capital goods and construction investment.

Export value contracted by 3.9 per cent year on year in July, while import value increased 13.3 per cent. Farm income rose 6.6 per cent, due mainly to increased production.

Deteriorating export conditions caused manufacturing production to decline, as reflected in 5.8-per-cent year-on-year contraction in the Manufacturing Production Index (MPI), according to the central bank. 

This was primarily due to a decline in production by export-oriented industries, especially hard disk drives and integrated circuit and parts. Nevertheless, production in domestic-oriented industries continued to grow after accelerated automobile production to accommodate backlog orders – which remained at a high level – as well as air-conditioner and refrigerator production.

The economy remains stable thanks to low rates of unemployment and inflation, the BOT said. 

Meanwhile, Finance Minister Kittiratt Na-Ranong, attending the Apec Finance Ministers Meeting in Moscow, said the ministers had agreed that each country should boost domestic demand to lessen the impact of global volatility stemming from the euro crisis, volatile oil prices and increases in other commodity prices.

Ministers urged members of the group to let the market and economic fundamentals decide exchange-rate movements, and to resist pressure to put up trade and investment barriers.