In fact, economic indicators for July showed the continued expansion on both production and demand sides. Farm income from major crops was up by 69.5 percent from the same period last year, due to expansion of both production and prices of paddy rice, rubber, and oil palm. Manufacturing production also registered a satisfactory growth of 11.3 percent during the first seven months. On the demand side, private investment and consumption continued its recovery trend. Exports also expanded well in line with production expansion. Meanwhile, imports accelerated, partly in response to improvement in domestic demand. Even though this resulted in a current account deficit, strong external stability has been reflected by high level of international reserves and low external debt. For the entire 2008, the central bank’s July Inflation Report has projected a growth rate of 4.8-5.8 percent with a more moderate growth in the second half, in line with the global economy. While this forecast has already taken into account a number of key risk factors, potentially prolonged political tension and uncertainty remain a prominent one, with little known about when and how it will unwind. This is reflected in the recent plunge in consumer confidence index. In a pessimistic extreme scenario, the government budget disbursement may delay if the upcoming budget process in parliament is disrupted and mega-project investment could fall behind schedule. Prolonged disagreement could also soften domestic demand and tourism, which would be unfortunate given that the tourism high-season is approaching.
This has, in turn, affected the outlook for Thai exports as the economic prospects of Thailand’s major trading partners, such as European Union and Japan, became less positive. Overall, the impact of bleaker global economic outlook depends on the degree of decoupling from developed economies and the consensus among central bankers over the world is that it is perhaps unrealistic to assume that emerging economies in general will be able to decouple. Therefore, it is more an issue of a time lag and at the present time we must wait and see when this moment of truth arrives and what the impact will be. I believe that unless the global economy dips below what we anticipated, the impact on the Thai economy will be manageable. BIS Review 119/2008  1  At this juncture, let me emphasize that Thailand’s underlying economic fundamentals remain sound and growth momentum on track. During the first half of 2008, the Thai economy achieved a favourable growth rate of 5.7 percent, improving from the growth of 5.3 percent in the second half of last year. Even though three of the four main engines of economic growth, namely consumption, investment, and public expenditure, remained mostly subdued, the performance of net exports was notably better-than-expected. This reflected export sector’s substantial efforts to adjust to slowing global demand by diversifying into new markets. Meanwhile, on the supply side, agricultural production was the key growth contributor, due mainly to an increase in crop production in response to higher market prices.