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K bank econ update june 2011

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Economic Updated June 2011

Economic Updated June 2011

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  • 1. ECONOMICUPDATE Capital Markets Research 1 June 2011 Thai Economic Update April Economic Data Amonthep Chawla, Ph.D. amonthep.c@kasikornbank.com • Economic indicators in April show signs of strong economic growth stimulated by accelerating domestic demand amid slower export growth • Economic uncertainty in the eurozone has increased risk appetite for the dollar and accelerated capital outflows from the equity market in Asia • Manufacturing production index (MPI) fell 7.8% yoy in April as a result of a decline in the production of automobile and parts caused by the natural disaster in Japan; both capacity utilization and business sentiment index declined • Private investment and consumption continued to grow, yet at a slower pace • Exports and imports continued to grow; trade balance turned deficit, partly due to impacts from Japan’s earthquake • Unemployment remained at the low level with a continual expansion of employment in the agricultural sector May Inflation Data • Headline inflation accelerated to 4.19% in May, led by gains in the prices of food, fuel, and rent • Core inflation increased from 2.07% to 2.48% in May • MPC saw continued risks to inflation going forward and raised the policy rate to 3.0% on June 1st For private circulation only. The foregoing is for informational purposes only and not to be considered as an offer to buy or sell, or a solicitation of an offer to buy or sell any security. Although the information herein was obtained from sources we believe to be reliable, we do not guarantee its accuracy nor do we assume responsibility for any error or mistake contained herein. Further information on the securities referred to herein may be obtained upon request. Page 1 of 5
  • 2. Economic Update Monthly Economic Data Strong economic growth, propelled by robust Farm income expanded as both crop domestic demand, is being challenged by the production and prices rose from income high oil prices, supply chain disruption in guarantee program and rising rubber price Japan and Greece’s debt crisis The index on farm income expanded to 62.9% yoy Data in April show signs of strong economic growth growth in April, after having risen 47.6% in March. stimulated by accelerating domestic demand amid slower Increase in both price levels of agricultural products and export growth. Production and exports of automobiles crop production contributed to an increase in farm were affected by supply chain disruption caused by income. Crop production grew 33.2% yoy mainly due to Japan’s natural disaster. Further, external uncertainty an increase in rice outputs as farmers had more incentive from debt crisis in the eurozone and persisting political to expand agricultural land due to the government’s chaos in the MENA region remained major threat to income guarantee program. Price levels jumped 22.3% Thailand’s economic growth. Greece’s debt burden has yoy, rebounding from the slower growth in the previous soared far above other peers while the government is not month as rubber price increased due to an increase in likely to reduce its fiscal deficit large enough, which raise the external demand and the reduction in the stock the possibility of debt default. during fall. Public debt per GDP % Manufacturing production fell due to inventory 160 of HDD and worries over Japan’s earthquake 140 % yoy % 120 40 75 100 80 30 70 60 20 40 10 65 20 0 60 0 -10 Portugal Netherlands Austria Belgium Germany Italy Finland Spain France Eurozone Ireland Greece 55 -20 -30 50 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Economic uncertainty in the eurozone has increased risk Manufacturing production index ISIC % yoy Capacity Utilization % (right axis) appetite for the dollar and accelerated capital outflows from the equity market in Asia. Asian currencies have Manufacturing production index (MPI) fell 7.8% yoy in been weakening against the dollar during the past month, April as a result of a decline in the production of led by MYR and THB. automobile and parts caused by the natural disaster in Japan. In addition, production in the Hard Disk Drive MYR -1.5% sector continued to fall as the inventory remained at a THB -1.4% high level. The apparel sector also shrank as buyers PHP -1.3% delayed their purchases as they expected raw material INR -1.2% prices to come down. Despite the reduction on other KRW -0.9% production, production in food and beverage, electrical SGD -0.6% Change against USD, 1 month appliance and electronics and parts grew steadily. JPY -0.2% TWD 0.0% Capacity utilization rate declined to 54.6% in April from IDR 0.1% 66.1% in March and, on a seasonally-adjusted basis, CNY 0.2% the level was at 59.7%. -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% An increase in policy rate by 25bps to 3% by the MPC Private investment and consumption continue today is seen necessary to stabilize economic growth. to expand Core inflation rose by 2.48% in May, which followed a higher cost of production that has been passed through Private Consumption Index consumers. 144 15 142 KBank Forecasts 140 10 MPC meeting Policy rate (%) 138 136 5 Jun 1st 3.00 134 0 Q3 3.25 132 Year end 2011 3.25 130 -5 USD/THB 128 126 -10 End Dec 2011 29.00 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 PII PII % y oy Consumption expanded at a slower pace than the previous month with the private consumption index in April rising by 4.5% yoy, mainly due to a slower expansion of passenger car sales as automobile For private circulation only. The foregoing is for informational purposes only and not to be considered as an offer to buy or sell, or a solicitation of an offer to buy or sell any security. Although the information herein was obtained from sources we believe to be reliable, we do not guarantee its accuracy nor do we assume responsibility for any error or mistake contained herein. Further information on the securities referred to herein may be obtained upon request. Page 2 of 5
  • 3. Economic Update production was disrupted by the Japanese earthquake. expanded by 1.07% from the previous month following Imports of consumer goods and VAT also grew at a the harvest season. Non-agricultural employment slower pace at 17.5% and 11.5% yoy, respectively. increased slightly only in the manufacturing and construction sectors while employment in trading and Investment also expanded at a slower pace with the services shrank down from the previous month. private investment index growing by 12.8% yoy but % Thai Unemployment shrank by 0.5% from the previous month, following a 4.5 slow down in imports of capital goods at 21.1% yoy 4.0 compared with 31.2% yoy growth in the previous month. 3.5 Commercial car sales also decelerated its growth 3.0 following a slow down in automobile production. 2.5 Investment in the construction sector expanded as 2.0 construction areas permitted rose by 1.6% yoy. 1.5 1.0 Private Investment Index 0.5 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 250 30 200 20 150 10 Exports and imports grew at a slower pace 100 0 while current account balance turned deficit 50 -10 % yoy $ mn 0 -20 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 100 5,000 80 4,000 PCI PCI %y oy 60 3,000 40 2,000 The business sentiment indices show a sharp decline in 20 1,000 0 0 confidence at present to below the neutral level at 50 but -20 -1,000 increasing in the near future. BSI for April dropped by 6.8 -40 -2,000 to 47.3 and for 3-month forward outlook increased by 0.8 -60 -3,000 to 52.8. Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Trade balance ( $ mn, right axis) Imports (left axis) Exports (left axis) 50 = neutral Thai Business Sentiment Indices 60 55 50 Exports in April dropped to $17.2bn from $21.1bn in March or 24.7% yoy. Exports of the agricultural sector 45 expanded the most at 48.3% yoy, yet declining from the 40 previous month at 66.8% yoy. Imports in March also 35 declined to $17.7bn from $19.2bn in March, which is an 30 increase by 26.3% yoy. Imports increased in fuel, but Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 declined in other sectors, i.e., automobiles and parts, BSI BSI 3m forward expectations capital goods, raw materials and machinery and consumer goods, which partly was a result of the Private deposit and credit remained on an expansionary Japanese earthquake. path. Private loans grew at 15.3% yoy in April. Deposit Services, income and transfers account turned to small also expanded at 9.9% yoy, a slightly higher growth than surplus of $312mn from a small deficit in March at 9.0% in March. Loan-to-deposit ratio of banking system $11mn, following a decline in a disbursement of dropped to 86.7% in April. dividends. The current account balance registered a small deficit of $165mn in April, compared with a % yoy Private credit and private deposit surplus of $1.9bn in March. 16 14 US$, mn 12 10 6000 8 5000 6 4000 4 3000 2 2000 0 1000 -2 0 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 -1000 Private credit Private deposits -2000 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Trade balance Services and transfers Balance of Payments Unemployment rate remained at a low level with an employment expansion in the agricultural sector Tourism sector continued to expand despite negative effect from the natural disasters in Japan. The number of Unemployment rate in March remained at 0.7% or 276.4 tourist arrivals increased by 35.9% yoy to 1.5 million thousand unemployed persons. Seasonal unemployment persons, mainly from Europe and East Asia. Natural was low at 0.9%. Employment in the agriculture sector disaster in Japan did not lead to a decline in Japanese For private circulation only. The foregoing is for informational purposes only and not to be considered as an offer to buy or sell, or a solicitation of an offer to buy or sell any security. Although the information herein was obtained from sources we believe to be reliable, we do not guarantee its accuracy nor do we assume responsibility for any error or mistake contained herein. Further information on the securities referred to herein may be obtained upon request. Page 3 of 5
  • 4. Economic Update tourist. On the contrary, Japanese tourists increased by The 4-bank average time deposit rate for 1-year tenor 24.6% yoy. Hotel occupancy rate was also in line with the stayed at 2.07% throughout May while, the 4-bank arrivals, increasing to 55.1% compared with 46.0% in average minimum lending rate (MLR) also did not pick up March last year, partly due to the political instability last from 6.75%. We expect that banks would continue to year that led to a low number of tourists. raise interest rates higher following the MPC rate hike on June 1st. Given that liquidity remained flushed, the pick 000 12-month moving averages % up in saving rate may not be too aggressive, or it could 1,500 65 come in series of small rises, depending on commercial 1,400 banks’ competition environment going forward. 1,300 60 1,200 55 Government bond yield curve 1,100 % 1,000 4.25 50 900 800 3.75 45 700 3.25 600 40 00 01 02 03 04 05 06 07 08 09 10 11 2.75 Tourist arrival (000 left axis) Hotel occupany rate (right axis) 2.25 1.75 1.25 Inflation accelerated by more than forecast in Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 April, warranting further rate hikes by BoT policy rate 2y 5y 10y % Headline inflation rate 4.5 Bond yields had been in range trade in recent weeks, 4.0 with much of the June 1st MPC rate hike having been 3.5 priced into the yields much earlier. A significant change in 3.0 2.5 the bond market is the switching of mid-curve bond 2.0 1.4 holding (4-6 year) into longer tenor bonds (7-15 year) as 1.5 1.0 0.6 0.6 0.5 0.4 0.5 yields along the mid-curve becomes less attractive in 0.5 0.3 0.2 0.2 0.3 0.2 0.2 0.5 0.0 0.2 0.2 anticipation of policy rate hikes. In any case, borrowing 0.0 costs are likely to remain at supportive levels for -0.5 -0.1 investment and economic growth going forward. High Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 level of liquidity would likely keep yields on long-term Headline CPI mom Headline CPI bonds in check despite higher policy rates and accelerating inflation rates. Headline inflation and core inflation accelerated in May. The headline consumer price index climbed 0.34% from Billion baht Change in Non-resident holdings in Thai GBs & fixed income April’s level, led by gains in the prices of food, fuel, and 100 rent. Headline inflation rate slightly increased from 4.04% to 4.19%. 50 % Core inflation rate 0 3.0 2.5 -50 2.0 -100 1.5 -150 1.0 0.7 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May 0.3 0.5 0.5 0.2 0.3 0.3 Change in foreign holding 0.2 0.1 0.0 0.1 0.1 0.1 0.0 0.0 0.0 0.1 0.0 0.0 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Foreigners’ bought substantial amount of bonds in April Core CPI mom Core CPI (with 0.1% mom change) and sold almost an equal amount in May due to risk-off trade in the global market. We have been seeing purchases of 7-10 year bonds in recent weeks, which Meanwhile, core inflation increased from 2.07% to 2.48% could indicate a possibility of the start of position-building in May, which is seen to support the MPC in raising the going forward. Yet, we do not expect foreign inflows to policy rate to 3% today. return in large amounts, given the uncertainties and recent sell-off in the stock market. Local interest rate movements $ mn % 3000 8.0 2500 7.0 2000 1500 6.0 1000 5.0 500 4.0 0 3.0 -500 2.0 -1000 1.0 -1500 0.0 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Foreign netbuy of local stocks (year-to-date, $ mn) Repo rate 12m deposit rate MLR For private circulation only. The foregoing is for informational purposes only and not to be considered as an offer to buy or sell, or a solicitation of an offer to buy or sell any security. Although the information herein was obtained from sources we believe to be reliable, we do not guarantee its accuracy nor do we assume responsibility for any error or mistake contained herein. Further information on the securities referred to herein may be obtained upon request. Page 4 of 5
  • 5. Economic Update 2010 2011 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 The Real Sector (%yoy , unless specified otherwise) Manufacturing Production Index, seasonally adjusted (level) 188.0 189.1 189.9 192.9 188.7 187.0 180.8 Manufacturing Production Index, without seasonal adjustment (level) 191.2 190.4 188.4 186.9 177.8 198.2 165.9 Manufacturing Production Index, without seasonal adjustment 6.0 5.7 -3.4 4.1 -3.0 -6.7 -7.8 Industrial Capacity Utilization (%) 63.9 63.6 62.4 62.3 59.5 66.1 54.6 Private Consumption Indicators Retail Sales (at 2002 prices) 5.3 8.1 7.9 9.4 8.8 3.8 n.a. Passenger Car Sales (units) 43.2 39.7 28.2 49.6 49.6 80.3 17.8 Motorcycle Sales (units) 2.0 9.3 18.2 7.5 24.3 13.2 15.5 Imports of Consumer Goods (at 2000 prices) 11.3 16.9 12.7 22.0 7.5 20.4 17.5 Private Investment Indicators Commercial Car Sales (units) 28.9 37.3 29.9 29.7 37.6 28.5 17.7 Imports of Capital Goods (at 2000 prices) 11.6 20.5 13.8 30.5 10.5 31.2 21.1 Cement Sales (tons) -7.4 4.2 8.7 3.8 4.8 2.3 2.7 Government Cash Balance (billions of baht) -76.0 -104.0 -14.0 -120.4 -18.8 -58.0 -5.5 Consumer Price Index 2.8 2.8 3.0 3.03 2.87 3.14 4.04 Food 5.5 5.8 5.6 5.94 5.15 5.87 8.59 Non-Food 3.7 1.1 1.6 1.34 1.53 1.53 1.35 Core Inflation (excluding raw food and energy) 1.1 1.1 1.4 1.32 1.45 1.62 2.07 External Accounts (Millions of US$, unless specified otherwise) Exports 17,584.0 17,220.0 15,475.0 16,523.0 18,406 21,072 17,243.0 ( %) 28.7 18.6 21.2 21.4 29.1 31.0 24.7 Imports 17,094.0 15,911.0 16,266.0 17,111.0 16,375 19,180 17,720.0 ( %) 35.0 8.8 36.5 31.2 18.6 27.2 26.3 Trade Balance 490.0 1,309.0 -791.0 -588.0 2,031 1,892 -477.0 Current Account Balance 2,740.0 1,019.0 1,750.0 1,090.0 3,823 1,881 -165.0 Net Capital Flow 2,759 394 -66 894 -44 -611 2,005 Monetary authorities 200 -34 1,151 1,561 150 -19 1,438 Government 429 -152 15 228 145 225 307 Bank 3,997 516 -1,122 1,455 -359 388 -1,479 Others -1,867 64 -110 -2,350 20 -1,205 1,739 Balance of Payments 5,822 820 2,263 1,689 4,271 1,365 3,570 Official Reserves (billions of US$) 171.1 168.0 172.1 174.0 179.5 181.6 189.9 Monetary Statistics (End of period) (Billions of baht) Monetary Base 1,072.2 1,109.9 1,243.3 1,233.3 1,233.6 1,267.9 1,202.5 ( %) (9.6) (9.3) (12.7) (17.4) 12.2 15.5 9.3 Narrow Money (M1) 1,202.3 1,235.4 1,302.4 1,326.2 1,346.4 1,345.6 1,347.6 ( %) 11.4 10.8 10.9 15.5 13.4 13.8 14.0 Broad Money (M2) 11,323.3 11,497.6 11,776.4 11,817.2 12,152.9 12,280.3 12,469.3 ( %) 11.2 11.1 10.9 11.5 13.7 13.1 15.1 Other Depository Corporations Deposits 10,206.0 10,387.9 10,584.9 10,606.3 10,834.2 10,891.3 10,964.4 ( %) 8.5 8.1 8.7 8.8 10.3 9.0 9.9 Other Depository Corporations Private Credits 9,580.3 9,751.1 9,947.0 10,064.5 10,209.7 10,308.2 10,375.0 ( %) 12.1 12.3 12.6 14.5 15.1 14.9 15.3 Interest Rates (% p.a.) Repurchase Rate, 1 day (closing rate daily average) 1.75 1.75 2.00 2.18 2.25 2.43 2.62 Overnight Interbank Rate (mode daily average) 1.62 1.62 1.88 2.06 2.12 2.31 2.49 Fixed Deposit Rate (1 year) 1.10-1.50 1.10-1.50 1.40-1.70 1.60-1.85 1.60-1.85 1.85-2.00 2.00-2.30 Prime Rate (MLR) 6.00-6.38 6.00-6.38 6.12-6.50 6.37-6.75 6.37-6.75 6.62-7.00 6.75-7.13 Exchange Rate (Baht : US$) 29.97 29.87 30.10 30.57 30.69 30.33 30.02 Source: Bank of Thailand For private circulation only. The foregoing is for informational purposes only and not to be considered as an offer to buy or sell, or a solicitation of an offer to buy or sell any security. Although the information herein was obtained from sources we believe to be reliable, we do not guarantee its accuracy nor do we assume responsibility for any error or mistake contained herein. Further information on the securities referred to herein may be obtained upon request. Page 5 of 5

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