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In the year 2004, the economy expanded well overall, in spite of some deceleration in the second half of the year due in part to high oil prices as well as dampened consumer and investor confidence as a result of many uncertainties arising during the course of the year.

Details of the economic conditions in December and the year 2004 are as follows:

1. Manufacturing Production. For the year 2004, MPI expanded by 8.1 percent, slowing down from 12.3 percent in 2003 but remaining satisfactory nevertheless. Production in all categories expanded well except food, the production of which contracted from a shortage of raw materials. The capacity utilisation rate averaged at 72.7 percent, rising significantly from 66.3 percent in 2003.

2. Domestic Spending. For the year 2004, PCI (preliminary figure) expanded at 3.7 percent, decelerating from 5.4 percent in 2003 as a result of the deceleration in farm income, the rise in inflation, and diminished consumer confidence. PII (preliminary figure) grew at 12.9 percent, comparable to the growth rate of 13.6 percent in 2003. The rise in the capacity utilisation rate from the previous year signalled that there should be a need to expand production capacity in many sectors. However, rising production costs, the southern unrest and the outbreak of avian flu probably delayed some investors�� decisions to invest.

3. Fiscal Position. In December, government revenue collection dropped by 16.1 percent year-on-year, with tax revenue increasing by 3.6 percent but non-tax revenue falling by 74.2 percent due to the high base effect from the additional revenue of 25,075 million baht from the sale of the government��s stocks to the Vayupak Fund (1) last December. If the aforementioned special revenue were not to be included, government revenue collection would have increased by 7.2 percent year-on-year. During this month, the government cash balance registered a deficit of 17.9 billion baht.

In the first quarter of FY 2005, government revenue collection rose by 4.6 percent year-on-year, and the government cash balance registered a deficit of 46.7 billion baht.

4. External Sector. In 2004, export value amounted to 96,064 million US dollars, increasing by 23.0 percent year-on-year compared to 18.2 percent in 2003. Import value amounted to 94,382 million US dollars, increasing by 27.0 percent year-on-year compared to 17.4 percent in 2003. The acceleration of imports which outpaced that of exports resulted in a smaller trade balance of 1,682 million US dollars compared to 3,759 million US dollars in 2003. However, the services and transfers account registered a surplus of 5,607 million baht, which was greater than the surplus of 4,206 million US dollars in the previous year during which the services account was adversely affected by the outbreak of SARS through diminished tourism earnings. The current account surplus thus remained at a high level of 7,289 million US dollars while the balance of payments was in surplus by 5,735 US dollars.

5. Prices. For the year 2004, headline inflation averaged at 2.7 percent, increasing from 1.8 percent in 2003, while core inflation accelerated slightly from 0.2 percent in the previous year to 0.4 percent. PPI grew by 6.7 percent as compared to 4.0 percent in the previous year.

6. Monetary Conditions. For the year 2004, private sector credit grew by 9.8 percent, accelerating on the whole from the previous year��s growth rate of 4.8 percent despite some deceleration in the last quarter in line with economic activity. Commercial bank deposits growth decelerated from 4.4 percent last year to 2.6 percent due to the withdrawal of funds for the purchases of savings bonds and other financial instruments.

Short-term market interest rates adjusted upward steadily owing to tightening liquidity and the upward adjustment of the Bank of Thailand��s policy rate three times this year from 1.25 percent per annum to 2.00 percent per annum. The 1-day repurchase rate and the overnight interbank rate averaged at 1.21 and 1.23 percent per annum, respectively.

7. In 2004, the baht hovered around 38.87 �V 41.70 baht per US dollar and averaged at 40.28 baht per US dollar, appreciating 3.0 percent from the previous year��s average. Despite a number of negative factors, including internal factors such as the outbreak of avian flu and the southern unrest and external factors such as the rise of crude oil price and better sentiments towards the US dollar in the beginning of the year in line with the US recovery, the baht continued to appreciate from the following factors: (1) fragile US dollar sentiments due to lingering structural imbalances in the US economy, (2) the upward adjustments of the Bank of Thailand��s policy rate, (3) increased foreign investment in the Thai stock market, and (4) rumours of an adjustment in the value of the Chinese renminbi.

Bank of Thailand

31 January 2005

GDP at Current Prices
Year 2000 2001 2002 2003 2004*
Billion US$ 122.0 116.0
146.4 160.5
Source: Bank of Thailand
* Forecast
Real GDP Growth
Year 1999 2000 2001 2002 2003 2004Q3
% 4.4 4.8 2.1 5.4 6.8 6.3*

Source: Bank of Thailand
Note: *Forcast 

GDP at Current Prices looks to close out the year with approximately a 10% increase over the previous year.

GDP per Capita
Year 1999 2000 2001 2002 2003*
US$ 1,997 1,970 1,910 2,014 2,160
Source: Bank of Thailand

Following two consecutive quarters of strong growth averaging 6.6 percent, real GDP growth for Thailand continued to remain favorable at 6.0 percent in the third quarter of 2004. Growth was driven mainly by strong domestic demand and robust exports.

year 1999 2000 2001 2002 2003 2004
rate 0.3 1.6 1.6 0.7 1.8 2.7
Source: Bank of Thailand

With regard to the inflation trend, assessed risks which could put pressure on prices in the future include the impact on domestic oil prices from higher world crude oil prices, the effect of the avian flu on food prices, the tightening of the labor market, and the increase in government employee��s and civil servant��s salary. The Bank of Thailand thus expects inflation in 2005 to accelerate to 3.0-4.0 per cent per annum.

International reserves at the end of October 2004 was 46.2 billion dollar, equivalent to 3.3 times short-term external debts.

Official Reserves
Year 1999 2000 2001 2002 2003 2004
Billion US$ 34.8 32.7 33.0 38.9 42.1 49.8
Source: Bank of Thailand
Prime Minimum Loan Rates
Year 1999 2000 2001 2002 2003 2004
Average of five largest commercial banks.
Source: Bank of Thailand

Economic stability has continued to be strong and overall liquidity in the financial system remains high. While private credit expanded, deposits continued to rise as well. Money market interest rates have declined and capital market conditions have improved.

Government Cash Balance (%GDP)
Year 1999 2000 2000 2002 2003 2004
Fiscal year = Oct.-Sept.   Billion Baht
Source: Bank of Thailand 

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