Growth in the first quarter has been subdued as domestic spending, both private consumption and investment is weaker-than-expected. Part of this pullback may have been a natural reversion to a more normal pace of growth after an unusually strong expansion last  BIS central bankers’ speeches  1  year. At the same time, on the external side, a drag on the overall Thailand’s trading partners’ growth continues to weigh on Thai exports. Going forward, however, many of the supporting factors remain in place. High level of employment and strong private sector confidence should provide an enabling environment for growth. Fiscal stimulus related to large-scale infrastructure investment should also begin to phase in from the latter part of this year. This would potentially generate a positive crowding-in effects on private spending. For this, I would expect the economy to return to its normal path in the third and fourth quarter of this year. Apart from slower growth, a potential threat to financial stability has increased, stemming from development in household indebtedness. Currently, household debt is rising to over 70 percent of GDP. International evidence suggests that a prolonged period of rapid credit growth could lead to a build-up of financial imbalances, worsen households’ debt servicing ability and loan quality, as well as sow a seed for asset price bubbles. The need for long-term focus Ladies and gentlemen, Having said all of the above, I may seem to paint the picture that the Thai economy is slowing down recently, largely as a result of weaker global growth.
Since the banks themselves have massive investments in this market, they were obliged to make writedowns which, in some cases, were hefty. There is still uncertainty about the volume of additional bank writedowns that will be needed, so that the situation on the international money markets remains tense. In this crisis, central banks have reacted fast and flexibly in order to secure the supply of liquidity to banks and counter distortions on the money market. By means of various measures, the Swiss National Bank was able to stabilise the three-month Libor within the target range, thereby keeping fluctuations in the relative restrictiveness of monetary policy low by comparison with other countries. However, it is not possible to solve the fundamental problems in the banking sector through the flexible deployment of an expanded range of monetary policy instruments; neither can they be resolved by means of coordinated actions on the part of central banks alone. The banks themselves must make a substantial contribution to solving the problems which triggered the current crisis. In this respect, the most urgent matters are transparency with regard to endangered positions and their valuation, increasing the capital base, and improving risk management and control systems. BIS Review 37/2008  1