BOT to await August figures before declaring recovery of economy

He added that there were declines in several economic figures in July. The BOT is not worried about these, however, is it believes the economy will pick up in the second half.

On Thursday the Fiscal Policy Office said the economy had passed through its low point amid positive signs in trade. However, risks to growth remain in the second half with the volatility of oil prices and the exchange rate and continued uncertainties in trading-partner countries, particularly the US.

According to the central bank’s “Economic and Monetary Conditions for July 2013” report, the economy last month continued to moderate after a decline in private purchases of cars and other durable goods and subdued exports as global demand remained fragile and domestic supply constraints persisted.

The flagging demand weighed down manufacturing production and private investment, but the tourism sector continued to expand robustly.

On the stability side, inflation eased and the unemployment rate stayed low. 

The current account recorded a deficit mainly because of gold imports and the repatriation of profits and dividends. The capital account posted a deficit from short-term loan repayment by financial institutions, and the overall balance of payments was in deficit.

Domestic private consumption slowed down, reflected by the Private Consumption Index (PCI), which contracted 0.7 per cent year on year. This was mostly because of the decline in auto and other durable-goods purchases, as fewer vehicles purchased under the first-car scheme remained to be delivered and new car orders also dropped. 

Households became more cautious with big-item spending given their previous debt accumulation. Nevertheless, purchases of non-durable goods continued to increase, as indicated by higher consumption of fuel, electricity and imported goods, especially food and beverages.

Merchandise exports declined with softened global demand and supply constraints, especially from shrimp disease. The value of merchandise export stood at US$18.804 billion (Bt604 billion), dropping by 1.3 per cent year on year from agricultural and fishery products as well as from manufactured goods. Declines were especially notable for processed agricultural products, petroleum products and electrical-appliance parts. Tensions in the Middle East added to the slowdown in automobile exports.

Slowing consumption and exports contributed to the contraction in manufacturing production and private investment. The Manufacturing Production Index (MPI) dropped by 4.5 per cent year on year as production of automobiles and electrical appliances suffered from weaker demand both domestically and externally. Processed seafood continued to be held back by the shrimp-supply shortage. Changes in consumer preference away from personal computers and towards tablets and smart phones reduced demand for hard-disk drives. 

 

Decline in PII

Meanwhile, the Private Investment Index (PII) declined by 5.4 per cent year on year, mainly from machinery and equipment investment by export-oriented industries. This was partly because of the high-base effect from post-flood reconstruction last year. Construction investment, however, expanded in line with increased construction for both residential and commercial purposes.

Weaker exports, manufacturing production and investment weighed on imports of automobile parts and capital goods. However, imports of consumer goods continued to expand. Altogether, merchandise imports totalled $18.546 billion, declining by 0.2 per cent year on year. Excluding gold, the import value stood at $17.137 billion, down by 4.1 per cent.

Farm income contracted by 1.2 per cent year on year as output fell by 2.7 per cent because water shortages and disease affected rice and shrimp production respectively. Farm prices meanwhile rose by 1.5 per cent year on year on the back of higher shrimp prices, higher livestock prices due to unfavourable weather conditions for production, and higher cassava prices due to rising demand for ethanol production. Rubber and rice prices declined, however, as orders from abroad, especially China in the case of rubber, slowed.

The tourism sector expanded robustly, with 2.2 million foreign arrivals or growth of 22.5 per cent year on year, thanks to more visitors from China, Malaysia and Russia.

On the fiscal side, government spending rose from employee compensation and capital expenditure for irrigation and transport projects. In spite of a decline in collections of value-added and excise taxes due to fewer car purchases, overall government revenue grew from corporate and personal income tax. With expenditure outpacing revenue, the government’s cash balance posted a deficit of Bt41.9 billion.

Affecting the current account was significant repatriation of profits and dividends, to a large extent contributed to by the exceptional earnings of automobile firms and the weaker yen compared with last year.