Economy UpdateEconomy Update

September 1 2011September 1, 2011

Economic UpdateL t F id B k h ld b i d• Last Friday, Bernanke speech could be summarized;

– no hints on QE 3 from Fed and instead, pledged that Fed is "prepared to employ its tools as appropriate to promote a stronger recovery". 

– the September FOMC meeting will be extended to 2 days. d h / d l d f• Revised US GDP growth in Q2/2011 declined to 1% from 1.3%

• Consumer confidence plunged in August to 44.5 that is lowest since the 2007‐2009 recession.  (consensus 52.0, previous 59.2). 

• FOMC, Mom of Aug, showed there was no clear consensus on what the stimulus would be.FOMC, Mom of Aug, showed there was no clear consensus on what the stimulus would be.– another round of asset purchases (QE3)– Fed could shift the maturity of the assets it's buying to help drive mortgage rates lower. – Fed could also cut the rate it pays banks on excess reserves deposited at the Fed, possibly incentivizing 

banks to lend more.banks to lend more. – Fed could also buy long term asset indicating it would maintain the size of its balance sheet for a more 

concrete time period. 

Consumer Sentiment Survey GDP Growth and ISM index

Economic Update

• Economic Confidence in Aug was lower at 98.3• Germany 

Unemployment rate was not changed at 7%– Unemployment rate was not changed at 7%– German Chancellor approved measures which would allow EFSF to buy 

government bonds and would increase its lending capacity. 

Economic Sentiment and Industrial Production Unemployment Rate

Economic Update2010 2011

• Thai Gov announced suspend the state Oil Fund's levies on diesel and gasoline from last Saturday would cut inflation by 0.5 percentage point.

Q1 Q2 Jul AugHeadline 3.30 3.01 4.10 4.08 4.29Core 1.00 1.46 2.37 2.59 2.85PPI 9.40 6.40 5.80 5.20

l d flpercentage point.

– Finance Ministry's Fiscal Policy Office, said that the policy interest rate should be lower than the current 3.50%

Policy Rate and Inflation 

• Headline and Core Inflation in Aug rose to 4.3% and 2.8% respectively.

• Thai Economy was slowdown in Jul due to world economy and high inventory. 

Manufacturing Production Index and CAPU USD/THB Movement

Interest Rate UpdateTHB I MTHB Interest Movement

USD Interest Movement

Expecting GDPGlobal GDP 2009 USD 62 trn Global GDP 2030 USD 129 trnGlobal GDP 2009, USD 62 trn Global GDP 2030, USD 129 trn

Population change by region, 2010‐2030 Number of Patents

Global Trade Openness

Export Volume Index World Export to GDP 

Thailand Export Structure   

Economic update

• The S&P/Case‐Shiller index of home prices in 20 cities continued to see substantial fall of 

4 5% i J ft 4 6% d i th 12 th d d i M4.5% yoy in June, after a 4.6% drop in the 12 months ended in May.• Personal Spending increased 0.8% in Jul from ‐0.1% in Jun.• Pending Home Sales remain weak at ‐1.3% 

Asia Market Update

• China– PBOC may increase Reserve requirement ratio (existing 21.5%) due to 

fi hti i fl ti d l dfighting inflation and calm down economy.

– Increased Reserve requirement ratio 100‐150 bps equi remove liquidity RMB 900‐950 Bil.

• Japan– Japan Finance Minister Yoshihiko Noda has been selected to be new PM. 

Thai Economic Updatek h l GDP Growth and GDP Contribution• Q2 GDP was weaker than expect, lower at 

2.6%

– Supply Disruption ‐> Export

– Pre election Caution > Investment

GDP Growth and GDP Contribution

– Pre‐election Caution ‐> Investment

• GDP Forecast 2011 declined to 3.5‐4%

• Trade Surplus in Jul = 2.8 Bil. USD

Export = 21 5 Bil USD– Export = 21.5 Bil. USD

– Import = 18.7 Bil.USD

Consumer Confidence Trade Balance is continuing surplus in Jul 

Fluctuating THB Due to Political Uncertainties and Global Risk Aversion

2011 Foreign Flows (Million Baht) and USDTHB

Due to Political Uncertainties and Global Risk Aversion

30 5

31

300,000

350,000Somewhat clearerdomestic politicalpicture in July

Inflationfears

30

30.5

200,000

250,000 Political uncertaintiesprior to the Julygeneral election

Strong externalBalance, 4.271Billion USD in FebSolid growthBOT’s tight MPt

29.5100,000

150,000 Risk offsentiment

in August

stance

29

50 000

0

50,000

010

Jan

Feb

Mar

Apr

May Jun

uly

ust

28

28.5

-150 000

-100,000

-50,000 20

J F M A M J J

Aug

Stocks Bonds USDTHB (RHS) 28-150,000 Stocks Bonds USDTHB (RHS)

Source: The Stock Exchange of Thailand, the Thai Bond Market Association, Bloomberg and SCB FM analysis11

USD/THB Movement

Avg = 30.31

1 Mth 3 Mth 6 Mth1 Mth 3 Mth 6 Mth

Spot 29.97 29.97 29.97

Swap point 0.08 0.23 0.43p p

All in Rate 30.05 30.20 30.40

Quantitative easing (QE3)?  Possible but not very soon and might not be that helpfuly g p

“…that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge … another approach would be to initiate more securities purchases … “

US real GDP growth: Weakness? US core inflation: Deflationary risk?

Source: July‐2011, Semi‐annual testimony to the congress

US real GDP growth: Weakness?Unit: %QOQ SAAR Unit: %YOY

US core inflation: Deflationary risk?

Start of QE2

St t f QE2Start of QE2

13Source: SCB EIC analysis based on data from Bloomberg

Federal Reserve District

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