Economic Intelligence Center (EIC)

July 2012

Houseview
Unit
Economic Growth (GDP)
Headline Inflation
Core Inflation
Policy Rate (RP-1D) (end period)
THB/USD (period average)

%YOY
%YOY
%YOY
%p.a.
THB/USD

SCB EIC forecasts

Actual
2011
1Q12* 2Q12* 3Q12
4Q12
0.1
0.3
3.6
3.4
16.5
3.8
3.4
2.5
3.0
4.2
2.4
2.7
2.0
2.2
2.6
3.25
3.0
3.0
3.0
3.0
31.2
30.7
31.7
31
30.5

2012
5.6-5.8
3.2-3.7
2.2-2.7
3.0
30.5

Sources: SCB EIC; NESDB; Bank of Thailand; Consensus Economics; foreign research houses.
*1Q12 and 2Q12 are actual figures except GDP 2Q12.

Economic Growth (GDP)

Inflation

The Thai economy in 2012 is expected to grow 5.6-5.8%,

Headline inflation for 2012 has been adjusted from

mainly due to domestic spending.

previous estimates and will average around 3.2-3.7%.

The domestic economy is expected to keep growing thanks to

private investment, which was a major driving force in the first
half of the year and is expected to grow 12% this year. Factors
that continue to encourage investment include increased
household spending, stable policy interest rate as well as the
disbursement of government investment budget as a result of
flood relief programs.
Export has improved as a result of the recovery of major
industries. The recovery of the automobile industry in particular
led to overall export growth in May. However, purchasing power
from European consumers is expected to decrease further as
major European banks decrease lending to the private sector due
to rapidly increasing non-performing loans. If the European
economy sharply contracts, Thai export to Europe as well as
other major European trading partners like China will also be
affected.

Global economic slowdown has led to a decrease in

estimates of crude oil prices in the medium term. Despite a
pickup in oil prices in the short term as a result of the boycott
on oil import from Iran on July 1st , the National Energy Policy
Council has taken control of diesel oil prices by reducing the
contribution to the Oil Fund by 80 satang per liter for a start.
Therefore, inflation is expected to decrease to a range of 3.23.7% as the pace of price adjustment will be slower, even
though the rise in minimum wage has already had some
effects.

Policy Interest Rate

Thai Baht

The policy rate will remain at 3.0% through 2012.

The Thai baht will fluctuate in the range of 30-32 baht

Decreased risks of inflation should result in interest rates remaining

at 3% until the end of the year. However, strong domestic spending
in the third and fourth quarter of the year may prompt the Bank of
Thailand to raise the policy interest rate at the beginning of 2013.
As of now, increasing risks of global economic slowdown have
not yet provided a strong justification for the Bank of Thailand to take
a preemptive action to decrease the policy rate in order to stimulate
the domestic economy.,

per US Dollar.

Phacharaphot Nuntramas, Ph.D. phacharaphot.nuntramas@scb.co.th

There will be a lot of volatility during the next 1-2 months. The
Euro Summit that has just taken place may have produced
policies to ensure that the resolution of financial institution
problems will not create more public debts. This should boost
confidence for investors who invest in Italian and Spanish
government bonds. However, substantial risks remain whether
the deal between the new Greek government and European
leaders regarding financial assistance will be resolved.
Once the situation in Europe becomes clearer towards the
end of the year, the Thai Baht should strengthen along with
other currencies in the region.