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Economy stabilises in September, BOT says

Oct 31. 2013
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By The Nation

The Thai economy stabilised in September thanks primarily to steady private consumption and investment, while the recovery in manufacturing production remained precarious. Nevertheless, exports of some products showed signs of recovery and the tourism sec

On the stability front, inflation eased and unemployment remained low. The current account posted a deficit due to a negative balance in the services, income and transfers account. However, a surplus in the capital account led to an overall balance-of-payments surplus.

Improving global demand started to have a positive impact on Thai merchandise exports, especially agricultural products, automobiles and integrated circuits and parts.

However, exports of fishery and hard-disk drives continued to contract as the outbreak of shrimp disease persisted and domestic technology production could not fully reap the benefits of growing global demand for high-tech products.

Moreover, exports of steel, metal and gold markedly declined because of the high base effect from last year. As a result, the value of merchandise export totalled US$19.16 billion (Bt596 billion), contracting by 6.3 per cent year on year.

Overall private consumption levelled off. Durable consumption contracted, particularly from automobile purchases.

Households had meanwhile become more cautious with other big-item spending given their previous debt accumulation and less optimistic sentiment. This also contributed to a slower pace of non-durable consumption, such as fuel and household electricity.

The contraction in the Private Consumption Index (PCI) by 6.1 per cent year on year, however, was partly due to a one-off factor, the high base effect from exceptional consumption-based VAT (value-added tax) collection last year.

Private investment continued to stabilise. Nevertheless, when compared with the high base from post-flood reconstruction last year, the Private Investment index (PII) declined by 3.3 per cent. The contraction was due mainly to a slowdown in commercial-vehicle sales and imports of machinery and equipment, especially in the electronics industry.

In addition, some businesses postponed their investments, awaiting a clearer recovery in the export outlook.

Construction investment, however, continued to expand as reflected by construction areas permitted for residential purpose as well as cement sales.

Fragile export performance and subdued domestic demand weighed on manufacturing production and merchandise imports. The Manufacturing Production Index (MPI) declined by 2.9 per cent year on year, for three main reasons.

First, production of frozen shrimp continued to be held back by the disease. Second, production of automobiles slowed as the increase in export orders could not fully offset the decline in domestic orders. Third, production of beer dropped temporarily as producers awaited more clarity on the revised excise tax.

Meanwhile, merchandise imports stood at $16.608 billion, declining by 6.1 per cent because of lower imports in all categories.

Farm income dropped by 2.6 per cent year on year as output fell from a decline in shrimp production, while paddy rice, cassava and oil palm production suffered from unfavourable weather. Rice production was also partly damaged by flooding.

Meanwhile, farm prices rose on account of higher shrimp and livestock prices due to high demand relative to supply. However, the rice price fell from external factors, most importantly low global demand as a result of the uncompetitive price of Thai rice and good harvests in major importing countries.

The tourism sector expanded robustly, with 2.1 million foreign arrivals, up by 27.6 per cent year on year, thanks largely to more tourists from China, Malaysia and Russia.

Fiscal spending picked up mainly from transfer payments under the rubber-subsidy scheme. Nonetheless, capital-expenditure disbursement for some irrigation and transport projects continued to be delayed by procurement problems and the construction-labour shortage.

For government revenue, personal income tax expanded well, but overall cash receipts decreased because of the corporate-income-tax carry-over to next month. With revenue outpacing expenditure, the government’s cash balance posted a surplus of Bt74 billion.

On the stability front, headline inflation decelerated to 1.42 per cent year on year on a slowdown in prices of all major categories. Core inflation was 0.61 per cent on the back of limited pass-through of costs to retail prices as domestic demand softened.

Unemployment stayed low.

The trade balance recorded a surplus but was offset by a larger deficit in the services, income and transfers account due to high repatriation of profits and dividends. As a result, the current account posted a deficit. On the other hand, the capital account was in surplus as foreign investors returned to purchase domestic bonds and equities as well as raised foreign direct investment in Thailand. The balance of payments posted a surplus overall.

The economy in the third quarter of 2013 showed some signs of recovery from the previous quarter as exports of some products gradually improved in line with global demand.

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