press mpr mar 17 en edited 22.4.17 · external factors. risks to inflation forecast tilt downward...

2/22

• Economic growth projection is revised up from a

stronger recovery of exports. Meanwhile, government

spending remains an important growth driver.

Private spending gradually picks up.

• Headline inflation, though revised down slightly, is

projected to gradually rise and move toward the

midpoint of the inflation target.

• Risks to economic forecast tilt more downward due to

external factors. Risks to inflation forecast tilt downward

in line with macro risks—and also with oil prices that

could be lower than expected.

Key developments and outlook

%YoY 2016* 2017 2018

GDP growth 3.2 3.4 3.6

(3.2) -

Headline inflation 0.2 1.2 1.9

(1.5) -

Core inflation 0.7 0.7 1.0

(0.8) -

* Outturn, ( ) Monetary Policy Report, December 2016

• Monetary policy should remain accommodative until the economy achieves a broader and firmer

growth that would facilitate the return of inflation to the target.

3/22

Trading partners’ growth forecast is revised upbut risks remain tilted downward

• G3 economies continue to recover, with domestic

spending the main growth driver.

• Asian economies shows moderate recovery, driven

by exports, especially electronics which benefit

from the uptrend of the Internet of Things (IoTs).

Risks tilt downward. Uncertainty of US trade policy is the main risk. China’s financial stability concerns, political developments in Europe, and problems faced by the European banking sector remain largely unchanged.

Monetary policy

Risks to trading partners’ economy

• Most central banks continue their accommodative

monetary policy, but policy accommodation is

expected to phase down due to improvements in

global economic and inflation outlook.

• The U.S. federal funds rate is projected to rise faster

than previously expected, especially in the first half

of 2017.

Merchandise export value of Asian countries

Note: Asia includes China, Hong Kong, Taiwan, South Korea, Malaysia, Singapore,

and Thailand. ( ) indicates share of total exports in 2016.

Source: CEIC, calculated by BOT

70

80

90

100

110

120

Jan

2014

Jul Jan

2015

Jul Jan

2016

Jul Jan

2017

Index, 3mma sa (Jan 13 = 100)

Jan 17Electronics (36.3)

Others (63.7)

Box: Asia’s exports and growth momentum from the

electronics technology life-cycle and the rise of the

internet of things

4/22

20

70

120

2014 2015 2016 2017 2018

Dec 16 Mar 17

High (+0.75 S.D) Low (-1.0 S.D)

Oil prices are lower than expected,while risks skew downward

• In the short term oil prices decline

given higher-than-expected supply

of US shale oil and oil inventory.

• In the longer term prices are

expected to gradually increase given

higher demand due to global

economic recovery.

USD/Barrel 2016* 2017 2018

As of Mar 17 41.4 52.3 54.8

As of Dec 16 (53.5) -

Dubai oil price assumption

Risks skew downward because of the

implementation risk regarding oil

producers’ ability to adhere to the

agreed production cut.

Risks to oil price projection

USD/Barrel

Forecast period


5/22

70

80

90

100

110

120

130

140

150

160

Jan

2013

Jul Jan

2014

Jul Jan

2015

Jul Jan

2016

Jul Jan

2017

Electrical appliances (5.8)

Automotive parts (6.3)

Motorcycle (0.6)

Petroleum related products (10.6)

Electronics excl. HDD (8.3)

Merchandise exports show stronger recovery in several categories

Recovery in exports of goods is supported by

• improving global economic growth

• higher electronics demand, supported by the uptrend of the Internet of Things (IoTs)

• relocation in production base of some industries, e.g. solar cells and tires

However, exports of goods still face headwinds from

• Structural global trade slowdown, Thailand’s manufacturing structural issues,US trade policy uncertainty

Merchandise export value projection

Thailand’s merchandise export volume

Index, 3mma sa (Jan 13 = 100)

Note: ( ) indicates share of total exports in 2016

Source: Thai Customs Department, calculated by BOT

Feb 17

%YoY 2016* 2017 2018

As of Mar 17 0.0 2.2 2.0

As of Dec 16 (0.0) -


6/22

3.9

6.1

9.4

3.9

8.4 8.9

3.5

5.5 5.8

0123456789

10

World Asia and the Pacific Thailand

Exports of services quickly recoverand are expected to continue gain traction

Millions 2016* 2017 2018

As of Mar 17 32.6 34.5 37.1

As of Dec 16 (34.1) -

Projection of number of foreign tourists to Thailand

Projection of growth of

number of tourists by destination

• Tourism recovered quickly in early 2017

from government measures to tackle illegal

tour operators. Tourism also gains traction

from the government’s reduction or

exemption of visa fees and from China’s

restriction on sales of tour package to

South Korea—the latter in effect brings

about some Chinese tourists to Thailand.

• Exports of services are expected to

continue growing due to Thailand’s

standing as a popular tourist destination

with additional support from government’s

tourism promotion campaign, especially

tourists from CLMV countries, and measures

to increase tourists’ spending per trip.

%YoY

Avg.05-15

2016 2017 2016 2017 2016 2017Avg.05-15

Avg.05-15

Sources: UNWTO (Released January 2017), Bank of Thailand

Box: Thailand’s tourism outlook


7/22

Private consumption is projected to grow moderately

Non-farm income• In the short term, private consumption has

not benefited from the firmer recovery in

merchandise exports, as improvements in

exports are mostly concentrated in the

capital-intensive sectors.

• Over the longer horizon, private consumption

is expected to grow on the back of

(1) improving services and farm incomes

(2) higher consumer confidence

(3) loan repayments related to First-time

Car Buyer Scheme that have been

progressively completed

Source: National Statistical Office

% YoY

0

2

4

6

8

10

12

14

16

18

20

2012 2013 2014 2015 2016

8/22

Private investment is expected to pick up

• There are signs of recovery in some

sectors such as electronics and

alternative energy businesses.

• Going forward, private investment is

expected to benefit from improvements

in exports, although the gain may be

initially limited due to producers’

excess capacity.

• Additional supporting factors come

from government policies such as

public-private partnership (PPP) and the

ongoing development of the Eastern

Economic Corridor (EEC).

3-Month Expected Business Sentiment Index

40

50

60

70

Jan

2014

Jul Jan

2015

Jul Jan

2016

Jul Jan

2017

Non export-oriented manufacturer

Export-oriented manufacturer

Diffusion Index (unchanged = 50)

80

90

100

110

120

130

140

2008 2009 2010 2011 2012 2013 2014 2015 2016

Private consumption

Private investment

Index, 4qma sa (Q1/08 = 100)

Source: NESDB, calculated by BOT

Q4/16

Feb 17

Private consumption, private investment, and merchandise export volume

9/22

Government spending continues to be a driving force

Public spending projection at current prices (calendar year)


• The government continues to run budget deficit in fiscal year 2018 and is likely to spend

more than previously expected thanks to

(1) Increasingly definite investment plans under the Pracharat project

(2) faster disbursement for telecommunications infrastructure upgrade project

• SOE spending is delayed in some railway project of State Railway of Thailand (SRT).

• Risks to government spending tilt to downside from public investment projects that could

be delayed.

Billion Baht 2016* 2017 2018

Government consumption 2,454 2,570 2,687

(2,547) -

Public investment 936 1,082 1,202

(1,089) -

10/22

Economic forecast is revised up

due largely to recovery in exports

(%YoY) 2016*2017 2018

Dec 16 Mar 17 Mar 17

GDP growth 3.2 3.2 3.4 3.6

- Private consumption 3.1 2.6 2.7 3.1

- Private investment 0.4 1.6 2.4 3.7

- Government consumption 1.6 3.2 2.2 1.9

- Public investment 9.9 11.9 11.8 7.5

- Exports of goods and services 2.1 0.6 2.1 2.8

- Imports of goods and services -1.4 2.4 2.6 2.9

* Outturn

11/22

Uncertainty and downside risks increase

due to external factors

GDP growth forecast

%YoY

Upside risks

• US fiscal policies (tax reform and

infrastructure investment) that could

lead to higher growth in the US

• Government’s stimulus measures that

could come out more than expected

Downside risks

• US trade policy uncertainty

• Trading partners’ growth that could be

lower than expected

• Public investment that could be delayed

Note: Fan chart covers 90% of the probability distribution

-4

0

4

8

12

-4

0

4

8

12

2014 2015 2016 2017 2018

12/22

Headline and core inflation forecasts are revised downslightly due to lower inflation outturns and oil prices

• Demand-side inflationary pressures are still low.

• Cost-push inflationary pressures increase only

slowly due to the gradual increase in oil prices

and limited pass-through to consumer prices.

• Going forward, inflation is projected to

gradually increase and move toward the

midpoint of the inflation target in line with the

ongoing economic recovery.

2016* 2017 2018


(1.5) -


(0.8) -

Inflation projections


Contribution to headline inflation

-4

-2

0

2

4

6

2013 2014 2015 2016 2017

Raw food price (15.69%) Energy price (11.75%)

Core inflation (72.56%) Headline inflation

% YoY

Inflation target 2.5 ± 1.5

13/22

Risks to inflation forecasts skew more downward,

in line with risks to economic growth

and oil prices that could be lower than expected

Core inflation forecast

Note: Fan chart covers 90% of the probability distribution

Headline inflation forecast

-2

-1

0

1

2

3

4

-2

-1

0

1

2

3

4

Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018

%YoY %YoY

2014 2015 2016 2017 2018-4

-2

0

2

4

6

8

-4

-2

0

2

4

6

8

2014 2015 2016 2017 2018

Headline inflation target (2.5 + 1.5)

14/22

Economic condition

Financial stability

Thai economic outlook improved and the economy was expected to expand

at a faster pace than previously assessed due to the stronger export growth

and the quick tourism recovery. However, positive spillovers to employment

and income were still limited. There remained significant risks to the Thai

economy particularly from the external front.

Headline inflation returned to the lower bound of the target and was

expected to gradually rise. However, demand-pull inflationary pressures

remained subdued.

Financial conditions remained accommodative. Overall financing costs,

which edged up in tandem with the bond yields, did not significantly

affect corporate financing.

Financial stability remained sound but there were some pockets of risks

to be monitored, such as deterioration in debt serviceability of SMEs and

households and the search-for-yield behavior.

Inflation

Financial condition

The MPC voted unanimously to maintain the policy rate at 1.5% at Feb 8 and Mar 29 meetings.

Monetary policy remains conductive to

the economic recovery.

The MPC views that monetary policy should remain accommodative and stands ready to utilize available policy

tools to ensure that monetary conditions are conductive to continued economic growth,

while ensuring financial stability.

15/22

0

2

4

6

8

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Jan-

15

Jan-

16

Policy Rate Minimum Lending Rate (MLR)

Effective Lending Rate (ELR) New Loan Rate (NLR)

ELR

NLR

MLR

Policy Rate

• According to movements in “new loan rate” (NLR), monetary policy transmission is found to be

more than previously assessed by looking at movements in minimum lending rate (MLR) or

effective lending rate (ELR).

Policy Rate, MLR, ELR, and NLR

%

Monetary policy transmission

has been more than previously assessed.

Box: Monetary policy transmission through the New Loan Rate

Source: Bank of Thailand

16/22

Government bond yields rose prior to Fed’s rate hike.

However, there was a correction subsequently because

investors expected the pace of rate hikes to be gradual.

• Government bond yields were slightly increased particularly long-term yields (over 5 years).

• The impact on the private sector was limited since most businesses raise funds through short-to-medium

term bonds (1-3 years).

Sources: IIF, Bloomberg

Market expectation has realigned with the dot plot.

Consequently, the likelihood of sharp market volatilities

and capital reversals is expected to decrease.

1.2

1.6

2.0

2.4

2.8

3-O

ct-1

6

14-O

ct-1

6

28-O

ct-1

6

10-N

ov-1

6

23-N

ov-1

6

7-De

c-16

21-D

ec-1

6

5-Ja

n-17

18-J

an-1

7

31-J

an-1

7

14-F

eb-1

7

27-F

eb-1

7

10-M

ar-1

7

5Y 1D BRP 1M 2Y 10Y

As of 22 Mar 17

The recent federal funds rate hike has not significantly

affected financing costs of Thai corporates.

17/22

Thailand’s external factors were strong compared with regional economies.

• Fed’s policy normalization might induce capital outflows from Thailand and the depreciation of the

baht to some extent, but this would not be a major concern because of Thailand’s external stability

As of Q4 2016 TH CN IN ID MY PH

CA/GDP (%) 9.4 1.2 -0.6 -0.8 3.7 -1.2

Reserve/Short-term Debt (times) 3.2 4 4.3 2.8 1.2 6.1

Short-term External Debt/Total External Debt (%) 40.3 55.4 16.8 12.8 38.6 18.4

External Debt/GDP (%) 32.5 13.3 23.6 35.3 64.9 26.3

-3

-2

-1

0

1

PHP CNY IDR MYR THB INR KRW TWDAs of 8 Feb 17 As of 23 Mar 17

Expected change of currencies over 2017

(median of polled forecasters)

Markets expected the baht to depreciate against US dollar but with a smaller magnitude than previously

anticipated and relatively less than regional currencies.

Source: Reuters, BOT, BOT calculation

Source: Bloomberg

In the period ahead, Fed’s rate hikes could somewhat affect

capital flows and exchange rates but would not cause a major concern.

%

18/22

Growth of household debt has declined but debt repayment ability of

households and businesses, especially SMEs, still need to be monitored.

81.2 79.9

4.34.1

3.4

0

5

10

15

20

0

50

100

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2011 2012 2013 2014 2015 2016

Business

Personal consumption

Others

Growth of household debt (RHS)

Household Debts1/

% YoY% of GDP

Source: Bank of Thailand

2.83

1.47

4.35

2.71

0

1

2

3

4

5

2012

2013

2014

2015

2016

%NPL Total loan

%NPL Corporate loan

%NPL SME loan

%NPL Consumer loan

Notes: 1/Loans given to household by financial institutions

Non-Performing Loan (NPL)

Q4 2016

19/22

80

100

120

140

Dec-

15

Feb-

16

Apr-

16

Jun-

16

Aug-

16

Oct

-16

Dec-

16

Feb-

17

Money Market Fund Foreign Investment Fund

Equity Fund Fixed Income Fund

Property Fund 1 Infrastructure Fund and REITS

Others Total

Money Market Fund and Daily Fixed Income Fund Net Asset Value (NAV) of mutual funds

Million million Baht Index (Dec 15 = 100)

Overall financial stability remained sound.

Need to monitor search for yield.

Increases in investments in money market funds

and in daily fixed income funds in previous

periods have stabilized

Increases in overseas investment through

foreign investment funds (FIFs) are mostly in

deposits in the investment-grade countries.

Source: Association of Investment Management Companies

Calculated by BOT staff.

Box: Developments of unrated bonds markets and

implications to financial stability

0.24 0.33 0.32 0.25 0.26 0.26 0.26 0.26 0.25 0.260.24

0.34 0.430.80

1.23 1.36 1.42 1.41 1.39 1.37

0.00

0.50

1.00

1.50

2.00

2011 2012 2013 2014 2015 Jun-16 Sep-16 Oct-16 Nov-16 Dec-16

Money Market Fund Daily Fixed Income Fund

Source: SEC

20/22

Key issues monitored by the MPC

Risks to global economic recovery

Heightened risks

• US economic and trade policies

Unchanged risks

• China’s financial instability

• Political developments and problems of

the banking sector in Europe

Financial stability risks

• Deterioration in SME debt repayment ability

• Yield searching behavior in the low-for-long

interest rate environment that might lead

to underpricing of risks

Volatilities in financial markets from external factors

Capital flows and exchange rates could be more volatile going forward given uncertainties in

external factors. Appropriate foreign exchange risk management by the private sector is critical.

21/22

Forecast summary as of March 2017

2016* 2017 2018

GDP growth 3.2 3.4 3.6

(3.2) -


(1.5) -


(0.8) -

* Outturn

( ) Monetary Policy Report, December 2016

22/22

Website

https://www.bot.or.th/Thai/MonetaryPolicy

/MonetPolicyComittee/MPR/Pages/default.aspx

23/22

Forecasts in the Monetary Policy Report, March 2017

* Outturn

Attachment

(%YoY) 2016*2017 2018


GDP growth 3.2 3.2 3.4 3.6

- Private consumption 3.1 2.6 2.7 3.1

- Private investment 0.4 1.6 2.4 3.7

- Government consumption 1.6 3.2 2.2 1.9

- Public investment 9.9 11.9 11.8 7.5

- Exports of goods and services 2.1 0.6 2.1 2.8

- Imports of goods and services -1.4 2.4 2.6 2.9

Current account balance (billion USD) 46.4 26.9 36.9 33.1

- Value of merchandise exports 0.0 0.0 2.2 2.0

- Value of merchandise imports -4.7 7.8 7.2 5.3

24/22

Forecast assumptions

2016*2017 2018


Dubai oil price (USD per barrel) 41.4 53.5 52.3 54.8

Non-fuel commodity prices (%YoY) -1.9 1.2 7.0 -0.3

Farm income (%YoY) 3.2 1.9 5.4 4.3

Public expenditure (calendar year)

Government consumption (billion Baht)** 2,454 2,547 2,570 2,687

Public investment (billion Baht)** 936 1,089 1,082 1,202

Fed funds rate (% year end) 0.63 1.38 1.38 2.13

Trading partners’ GDP growth (%YoY) 3.1 3.1 3.3 3.3

Regional currencies per USD (excl. RMB)*** 154.5 160.3 160.2 161.7

Note: * Outturn** Includes spending on the Water Management and Infrastructure Investment plans

*** Higher value indicates currency depreciation against the USD

Attachment

25/22

Assumption on trading partners’ GDP growths

Notes: * Outturn** Weighted by shares of Thailand’s major trading partners in 2014 (7 Asian countries including

Singapore (6.5%), Hong Kong (7.9%), Malaysia (8.0%), Taiwan (2.5%), Indonesia (5.9%), South Korea (2.8%), and Philippines (3.7%))

*** Weighted by shares of Thailand’s major trading partners in 2014 (13 countries). The table excludes other countries with small trade shares.

Attachment

(%YoY)Weight***

(%)2016*

2017 2018


United States 14.9 1.6 2.2 2.3 2.4

Euro 10.0 1.7 1.1 1.5 1.5

Japan 13.6 1.0 1.1 1.1 0.9

China 15.7 6.7 6.3 6.5 6.2

Asia** 37.4 3.5 3.5 3.6 3.8

รวม 100 3.1 3.1 3.3 3.3

press mpr mar 17 en edited 22.4.17 · external factors. risks to inflation forecast tilt downward...

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