1

I Economic and inflation outlookI. Economic and inflation outlook

II Monetary policy stances going forwardII. Monetary policy stances going forward

2

I Economic and inflation outlookI. Economic and inflation outlook

II Monetary policy stances going forwardII. Monetary policy stances going forward

3

The Thai economy is viewed to moderate from last assessment from the intensified impact of the euro area’s crisis

on merchandise exports, which, in turn, will also affect domestic demand going forwarddomestic demand going forward

4

Forecast summary for 2012 and 2013

• Growth forecasts for 2012 and 2013 are revised down to 5.7 and 5.0 percent, respectively, while inflation is likely to soften throughout the forecast period.

2011 2012 2013GDP Growth 0.1* 5.7 5.0

(6.0) (5.8)Core Inflation 2 4* 2 2 1 9Core Inflation 2.4 2.2 1.9

(2.5) (2.1)Headline Inflation 3.8* 2.9 3.4

*Outturns

(3.5) (3.5)

5

( ) Inflation Report May 2012

Main factors leading to forecast revisionPost-flood recovery was robust in the first half of the yearPost-flood recovery was robust in the first half of the yearBut going forward, growth momentum is likely to moderate from:

1 Decelerating domestic demand after picking up earlier in the year1. Decelerating domestic demand, after picking up earlier in the year2. Weakening global growth and heightened risks, which will weigh on

merchandise exports and internal demand going forwardmerchandise exports and internal demand going forward3. Fiscal stimulus that softens from the previous assessment

Overall inflation pressure declines with lower cost and demand pressureOverall inflation pressure declines with lower cost and demand pressure

6

Post-flood rehabilitation accelerated in the first half,resulting in less demand momentum going forwardresulting in less demand momentum going forward

• In the first half of the year businesses ramped up their investment for • In the first half of the year, businesses ramped up their investment for machine replacement and reconstruction, which helped support production and exports to rebound firmly production and exports to rebound firmly

• In the period ahead, domestic demand is likely to moderate, as businesses recovered rapidly and a large part of pent-up demand has been satisfied already in the first half

7

Global growth prospects weaken further

L di i di f d i f ll b l 50 • More broad-based impact of the euro

area’s debt crisis on the global economyM f t i P h i M ’ I d (PMI)

Leading indicator of production fell below 50, indicating further weakness

• Increasing signs of slowdown in advanced and emerging market economies60

Index (50 = unchanged)

Manufacturing Purchasing Managers’ Index (PMI)

Last IR (May)

• Global economic recovery likely to be more protracted55

• Heightened risks to growth, with some central banks starting to ease their monetary policy further to contain 45

50

monetary policy further to contain downside risks

40

45

Jan-11 Apr Jul Oct Jan-12 Apr

8

p pAdvanced economies Emerging market economies

Source: IMF World Economic Outlook, July 2012

Euro area’s economy becomes more fragile …• The debt crisis has impacted the real sector severely and is likely to be prolonged.

Composite* Manufacturing Services**

Private sector sentimentsEU Purchasing Managers’ Index (PMI)

Diffusion index

60

Diffusion indexPar = 50 Last IR (May)

120

Diffusion indexPar = 100 Last IR (May)

50

55

100

110

45

50

90

100

40Jan 11 Apr Jul Oct Jan 12 Apr Jul

80Jan 11 Apr Jul Oct Jan 12 Apr Jul

9Sources: CEIC, CESifo, European Commission, Eurostat, INSEE, Markit Economics

*Composite Output Index **Services Business Activity Index

Germany IFO France INSEEEC Economic sentiment

.. and risks to euro area’s growth remain high going forward

• Whil th d bt i i d f th EU it • While some progresses on the debt crisis emerged from the EU summit meeting in June, implementation hurdles remain as reflected in global market sentiment that improved only temporarily market sentiment that improved only temporarily

• Existing structural concerns will continue to hinder recovery in the period ahead

• Euro area’s banks continue to deleverage and tighten credit standards • Cost of funds remain elevated• Many European governments need to implement further fiscal

consolidation

10

Asian growth outlook moderates from the previous assessment• Exports continue to decelerate from the impact of global slowdownp p g• However, Asian economies still have ample policy rooms for internal stimulus

China Singapore South KoreaDiffusion index Par = 50

New Export Orders

Last IR (May)

60

65

60

65Last IR (May)

45

50

55

45

50

55

35

40

45

35

40

45

11Source: CEICJan-11 Apr Jul Oct Jan-12 Apr Jul

Thai exports will likely subside with global demand slowdown, as signaled by leading indicators that fell below par value

Total Export (%YoY)

Projections of Export Values for 2012BOT (as of Jul 12) 7.0%BOT ( f J 12) 8 3%

Leading Indicators of Thai Exports

7060

US's ISM Export Order (3-month leading)China's New Export Orders (5-month leading)BSI Export Order (3-month leading)

%YoYDiffusionIndex

BOT (as of Jun 12) 8.3%MOC (as of Jun 12) 15.0%FPO (as of Jun 12) 12.8%

60

70

30

60

40

50

-30

0

30-60Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12

12( ) Duration that each indicator leads Thai exports Sources: Bloomberg and Bank of Thailand

i l i l f f h i Fiscal stimulus softens from the previous assessment,but remains supportive for growth going forward

• Investment spending through budget and water management plans for 2012 is delayed from assessed, partly postponed to 2013-2014

• Part of government consumption is reclassified into transfer payments, which help support household spending indirectly

May-12

Assumptions on Public Investment*

Unit : Billion baht

Assumptions on Government Consumption*

May 12Jul-12

Unit : Billion baht

1,541 1,6231,481 1,608

691886

648867

FY 2012 FY 2013 FY 2012 FY 2013FY 2012 FY 2013 FY 2012 FY 2013

* Government’s direct spending that includes water management projects (3.5 billion baht in total) 13

Weaker global growth and softer government spending will weigh on private consumption and investment in the period ahead

ll d d d ( )

Projection of private demand

130

Jul-12 May-12

Seasonally adjusted index (2010Q1 = 100)

120

100

110

90Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014

Forecast period

Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014

Source: Bank of Thailand 14

However, private consumption and investment will continue to grow and serve as the main growth engine going forward

Key supporting factors include:Business Sentiment

(above 50 = better prospects)70Diffusion Index

3 M th E t d I t t S ti t I d• Household’s favorable income prospects• Positive business sentiment 54.7

62.0

50

60

3-Month Expected

3-Month Expected Investment Sentiment Index

• Stimulus measures from government and financial institutions 30

40

2008 2009 2010 2011 2012

Domestic Order Books Index

3 93

10• Conducive monetary conditions

Real MLR

% Real Interest Rate

3.93

-0.210

5

Real 12M Deposit

15

-52008 2009 2010 2011 2012

Real 12M Deposit

Source: Bank of Thailand’s Business Sentiment Surveys; real interest rates calculated by 12-month expected inflation forecasts

• Growth projection for 2012 is revised down in line with global growth

Growth forecast summary

• Growth projection for 2012 is revised down in line with global growth prospects, which may affect second half’s exports and domestic demand, as well as softened fiscal stimulus.

• For 2013, global economic concerns will continue to affect exports and domestic demand, resulting in lower growth forecast overall., g g

GDP Growth 2011 2012 2013This Inflation Report (Jul 2012) 0.1* 5.7 5.0Last Inflation Report (May 2012) 0.1* 6.0 5.8

*Outturns

16

Heightened risks to growth

• Downside risks increase, as reflected in

Heightened risks to growth

Annual change (%)

GDP Growth Forecast,

the growth fan chart that is skewed downward to a greater degree, given

2525 these factors:1. The euro area economy, which is

the center of the crisis, may slip 15

20

25

15

20

25

Last IR Lower Bound (May12)

Last IR Upper Bound (May12)

, y pinto a deeper recession

2. Asia’s real economy may suffer 5

10

15

5

10

15

from the debt crisis more severely3. For the U.S., several stimulus

measures expiring at end-2012 -5

0

-5

0

Note: The fan chart covers 90 percent of the probability distribution

measures expiring at end 2012 might not be extended, thus resulting in the “fiscal cliff” and

-10-10

Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014

dampened growth momentum17

Inflation forecasts for 2012 and 2013 are revised down Inflation forecasts for 2012 and 2013 are revised down with lower cost and demand pressure

• Cost pressure from oil, raw food, and other commodities is projected to subside temporarily in 2012, before picking up to the previous trend in 2013 p.19

• Demand pressure softens with moderating growth momentum• Inflation and cost expectations remain stable

2011 2012 2013C i fl ti 2 4* 2 2 1 9Core inflation 2.4* 2.2 1.9

(2.5) (2.1)Headline inflation 3 8* 2 9 3 4Headline inflation 3.8 2.9 3.4

(3.5) (3.5)*Outturns

18

Outturns( ) Inflation Report May 2012

Oil price outlookOil price outlookAssumptions on Dubai Crude Oil Price

• Crude oil price falls temporarily USD/Barrel 2010* 2011* 2012 2013

May 12 (base case) 75.5 106.3 115.3 110.0Jul 12 (base case) 75.5 106.3 108.0 110.0

p p yin 2012 given elevated concerns on euro area’s economyJul (base case) 5.5 06.3 08.0 0.0

Jul 12 (high case) -- -- 111.9 124.7Jul 12 (low case) -- -- 104.0 95.3

• But going forward, the price is bound to recover as projected

160

May 12 (base) Jul 12 (base)Jul 12 (high 0.5 SD) Jul 12 (low 0.5 SD)

USD/Barrel previously, due to the impact of Iran’s conflict and political

t i S d S i d 120

110127

100120140

p.18

unrests in Sudan, Syria, and Yemen

105 93

6080

100

*Outturns

Q1 2010

Q1 2011

Q1 2012

Q1 2013

Q1 2014

19

Lower risks to inflation

Downside risks to inflation outweigh upside risks

Downside risks• The global economy may be weaker than expected, resulting in lower oil

and commodity prices• Pass-through from costs to prices may subside with softer demand

Upside risks• Geopolitical events in the Middle East may tense up and lead to shortage

in global crude supply• Minimum wage hikes may impact consumer prices more than assessed

20

Downside risks to core and headline inflation increase, as reflected in the fan charts that are more downward-skewed

Annual change (%)

Headline Inflation Forecast Core Inflation Forecast

Annual change (%)Annual change (%)

4

5

6

4

5

6

Last IR lower bound (May12)

Last IR upper bound (May12)8

10

8

10

Annual change (%)

2

3

4

2

3

4

4

6

4

6

0

1

0

1

0

2

0

2

last IR upper bound (May12)

last IR lower bound (May12)

Note: The fan chart covers 90 percent of the probability distribution

-1-1

Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014-2-2

Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014

21

I Economic and inflation outlookI. Economic and inflation outlook

II Monetary policy stances going forwardII. Monetary policy stances going forward

22

Monetary Policy Committee’s decisionsThe Monetary Policy Committee (MPC) voted to maintain the policy rate at 3 percent per annum in the last two meetings viewing that:

eta y cy ttee s dec s s

3 percent per annum in the last two meetings, viewing that:• Global economic growth weakened while downside risks also escalated• The Thai economy recovered from the flood and resumed its normal conditions• Overall monetary conditions remained supportive for domestic demand growth

- Low real interest rates Robust credit expansion- Robust credit expansion

20%YoY

Jun 12ODCs’ Private Credits

4

Real policy rate remains low% per annum

15

20 Jun 1216.1

+1 2+1.6

+2.5

+3.0

2

3

4

5

10

-0.1

+0.3 +0.3+0.8 +0.8

+1.2

-1

0

1

0Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

-1TH TW KR MY IN ID AU PH CN

Nominal 3.00 1.875 3.00 3.00 8.00 5.75 3.50 5.75 6.00policy rate

Source: Inflation forecast from Consensus Forecast 2012 (Jul 2012 survey) Data as of 3 August 201223

Key issues that need to be monitored closely and are crucial to monetary

Monetary policy outlook

policy deliberations:

• The actual impact of global slowdown on domestic economy, especially on exports and export-oriented production

• The ability of domestic demand and fiscal stimulus in sustaining overall economic momentum

• Inflation pressure associated with minimum wage hikes and labor shortage in certain industries

Monetary policy may help cushion downside risks to growth,especially if the impact of global economic concerns intensifies

24

http://www.bot.or.th/Thai/MonetaryPolicy/Inflation

25

Attached

Detailed summary of forecasts(%YoY) 2554 2555E 2556E

GDP Growth 0.1 5.7 5.0

- Private Consumption 1.3 5.2 3.9

- Private Investment 7.2 14.7 9.1

- Public Consumption 1.1 1.1 5.2

- Public Investment -8 7 10 5 22 0- Public Investment -8.7 10.5 22.0

- Exports of Goods and Services 9.5 6.8 9.3

- Imports of Goods and Services 13.7 10.4 11.1

Current Account Balance (Billion USD)* 12.3 -0.4 0.4

Trade Balance (Billion USD)* 23.5 11.0 13.7

- Value of Exports* 16.4 7.0 10.8

- Value of Imports* 24.7 14.0 10.1

26

Note: E = Expected* Data revision according to BPM6

Attached

Assumptions on Thai trading partners’ GDP growth

May-12

2012

%

2013

6.1

4.85.7

4.5567

May 12Jul-12 6.8

5.56.6

5.1

2.2 1.81.92.4

234

2.31.52.0

1 3

-0 5 0 7-101 1.0 1.5

0.0

1.3

0.5-0.7-21

US EU JP Asia* TPGDP** US EU JP Asia* TPGDP**

N t * W i ht d b j Th i t d ’ h i 2010 (8 A i t i )

27

Note: * Weighted by major Thai trades’ share in 2010 (8 Asian countries) ** Weighted by major Thai trades’ share in 2010 (13 countries)

Source: Projected by Bank of Thailand