ECONOMIC OUTLOOK by alicejenny


									                                                                                                            Press Release 9.30 a.m.
                                                                                                                 December 3, 2007
Economic Performance in Q3 and Outlook for 2007 - 2008                                                         December 3, 2007

                                                                                  NE S DB
                                        ECONOMIC OUTLOOK
      AND OUTLOOK FOR 2007 - 2008

              • The Thai economy in the third quarter of 2007 expanded by 4.9 percent, picked up from 4.3 and
                4.2 percent in the second and first quarters. This was driven mainly by private consumption and
                investment recovery as well as an acceleration of budget disbursement. A vigorous export growth
                also supported the growth momentum. Overall, GDP in the first three quarters grew by 4.5 percent.
              • The economic stability remains in check. Headline inflation was 1.6 percent, subsided from 2.4
                and 1.9 percent recorded in the first and second quarters. Average headline inflation during the first
                10 months of 2007 was 2 percent. Unemployment rate stood at 1.2 percent in Q3. Meanwhile,
                current account balance registered a surplus of 2.93 billion USD in the third quarter and of 9.26 billion
                USD in the first 9 months.
              • Interest rate continued to trend down, credits accelerated while deposits slightly slowed
                down. However, liquidity remained at a high level. Movement in currency and stock markets became
                more volatile, caused by fluctuation in global financial market. On average, Thai baht appreciated,
                and SET index increased.
              • Budget balance and fiscal cash balance recorded deficits, consistent with the expansionary fiscal
                policy to stimulate the economy. Public debts stood at 37.84 percent of GDP at the end of
                September 2007, increased from the 37.72 percent recorded at end of June 2007 but lower than
                41.28 percent at the end of September 2006.

              • Favorable factors that support the economy in the fourth quarter of 2007 include rising business
                confidence, declining interest rate and acceleration of government and state-owned enterprise
                budget disbursement. Export is also expected to remain strong.

              • In 2007, the Thai economy is likely to grow at least 4.5 percent. Export is the main driving force
                although a slowdown is foreseen in the latter half due to prevailing global economic slowdown.
                Private consumption and investment recover throughout the latter half. Inflation rate will be 2.3
                percent. Current account will record a surplus of 6.0 percent of GDP and unemployment rate will
                remain low at 1.5 percent.
              • In 2008, the Thai economy is forecasted to expand by 4.0-5.0 percent. The recovery in domestic
                demand is expected to offset a slowdown in export. Domestic conditions will be more favorable with
                such supporting factors as lower interest rate and unemployment rate, budget deficit in the fiscal year
                2008 and political certainty. However, downside risks of the forecast are associated with rising and
                volatile oil prices and world economic slowdown. Inflation rate is projected at 3.0–3.5 percent.

Office of National Economic and Social Development Board                                                                 1
                                                                                                            Macroeconomic Office
                                                           Office of the National Economic and Social Development Board (NESDB)
                                                                                    962 Krung Kasem Rd. Pomprab, Bangkok 10100
Economic Performance in Q3 and Outlook for 2007 - 2008                                                    December 3, 2007

1. Economic Performance in
  Q3 of 2007

1.1 The Thai economy in the third quarter of               Key Developments
    2007 grew by 4.9 per cent, up from the
                                                           Thai economy in the third quarter of 2007 expanded
    first half of the year, supporting by a
                                                           by 4.9 percent, slightly picked up from 4.2 and 4.3
    recovery      in    domestic     demand,
                                                           percent in the first and second quarters. The
    acceleration of government budget
                                                           improvement from the first half of 2007 is attributable to a
    disbursement and robust exports despite
                                                           recovery of private consumption and investment,
    some slowdowns from the first half of the
                                                           acceleration in government budget disbursement and
    year. Overall, the Thai economy in the
                                                           strong export growth, despite a slowdown from the first
    first three quarters of 2007 expanded by
                                                           half of the year. All in all, the economy grew by 4.5
    4.5 percent.
                                                           percent in the first 3 quarters. Economic stability
                                                           remained in check with low unemployment rate of 1.2
                                                           percent, headline inflation rate of 1.6 percent, lower than
                                                           2.4 and 1.9 percent in the first and second quarters
                                                           respectively, and a current account surplus of 2,928
                                                           million US dollars (and 9,262 million US dollars in the first
                                                           9 months). Positive signs and key developments in the
                                                           third quarter are as follows:
                                                           • Household consumption improved, growing by 1.9
                                                             percent, up from 1.3 and 0.8 percent in the first and
                                                             second quarters respectively. Higher spending were
                                                             seen in furniture and accessories, electrical
                                                             appliances, passenger cars and beverage. Low
                                                             interest rate has been a supportive factor which drive
                                                             consumer loan to 16 percent expansion. Low inflation
                                                             also helped encouraging consumption.
                                                           • Private investment started to pick up, with a growth
                                                             rate of 1.1 percent compared to the contraction rate of
                                                             2.3 and 0.7 percent in the first and second quarters
                                                             respectively. The recovery was seen in both
                                                             machinery and equipment, and construction
                                                           • Government          disbursement           accelerated.
                                                             Government disbursement rate in the third quarter
                                                             achieved a target of 26 percent of planned budget,
                                                             with the government expenditure of 407,027.2 million
                                                             baht, compared to government disbursement of
                                                             348,588.4 million baht in the third quarter of 2006. The
                                                             disbursement of state enterprise investment budget
                                                             totaled 78,082.47 million baht, increased from that of
                                                             69,449.37 million baht in the same period last year. At
                                                             1988 prices, the government expenditure increased
                                                             by 9.8 percent, continued from 9.4 and 9.2 percent in
                                                             the first and second quarters respectively. Public -

Office of National Economic and Social Development Board                                                                2
Economic Performance in Q3 and Outlook for 2007 - 2008                                                                                     December 3, 2007

                                                                        investment expanded by 5.8 percent, accelerated from the first
                                                                        half of the year.

Share (%)
                  Export market of computer and parts
                        1992       1996      2004       2005    2006    • Structural change in major export market of electronics,
China                   0.0        2.0       16.5       20.7    16.6      chemical, plastic goods and vehicles to the new markets
Hong Kong               2.5        1.9       6.0        8.6     9.6
Malaysia                2.4        4.6       7.7        6.5     5.6       helps absorb the impact of a slow down in export to major
Taiwan                  2.4        1.2       3.6        2.9     5.1       markets. Moreover, export of hard disk drive remains strong
Others                  18.9       23.5      24.2       23.5    25.7
USA                     28.7       19.7      17.6       16.8    19.4      since Thailand is the main producer of hard disk drive with the
Singapore               35.6       28.9      16.3       13.5    11.1      export share of 40 percent of the world market. The increased
Japan                   11.9       9.7       8.1        7.5     6.9
Total                   100.0      100.0     100.       100.0   100.0     intensity of digital content in various kind of products, namely
Source: Ministry of Commerce
                                                                          stereo, camera, mobile phone and television, is also the
                                                                          stimulating factor for hard disk drive export.
                     Export market for automobiles
Share (%)                1992      1996      2004       2005    2006    • Tourism rebounded, with the number of foreign tourists
Australia                1.4       4.1       13.6       16.1    15.8
Saudi Arabia             0.4       0.3       2.8        6.2     6.5       increased by 2.2 percent compared to only 0.4 percent in the
Philippines              0.9       4.4       3.9        4.2     4.2       second quarter.
Malaysia                 1.7       2.7       4.8        5.5     4.7
                                                                2.8     • Imports of capital goods continued to pick up. Import
Japan                    7.3       4.7       9.2        6.9     6.9       value of capital goods expanded by 7.6 percent, compared to
Singapore                5.5       2.1       5.0        4.5     3.4
Others                   27.3      45.7      45.3       43.5    49.7      7.2 percent in the second quarter and the decrease of 6.6
Source: Ministry of Commerce                                              percent in the first quarter. In volume term, capital goods
                                                                          import increased by 5.2 percent, improved from the decrease
                                                                          of 8.1 percent and the increase of 5.2 percent in the first and
                                                                          second quarters respectively. Major capital goods which show
                                                                          increasing signs included electronics, agricultural machinery,
                                                                          and computer components, as well as the import of aircraft of
                                                                          Thai Airways International.
                                                                        • Restructuring of energy consumption helped the Thai
                                                                          economy to better adjust during the period of high oil
                                                                          prices than in earlier periods. This, together with baht
                                                                          appreciation, also lessened upward inflationary pressures.
                                                                          Such improvements were apparent in higher consumption of
                                                                          bio-diesel and gasohol, which are alternatives to hi-speed
                                                                          diesel and gasoline respectively. This development partially
                                                                          contributed to the reduction in total energy and crude oil
                                                                          imports of 5.8 and 3.6 percent respectively. In addition, the
                                                                          faster capacity expansion of hydro and gas power generation
                                                                          than it was previously planed has allowed for a reduction of Ft
                                                                          for all together 12.31 Stang per unit.
                                                                        Sectoral economic conditions
                                                                            Private investment recovered both in machinery and
                                                                            equipment, and construction. In the third quarter, private
                                                                            investment expanded by 1.1 percent, improved from 2.3 and
                                                                            0.7 percent contraction in the first and second quarter
                                                                            respectively.    Investment in machinery and equipment
                                                                            expanded by 1.3 percent, turnarounded from a decline of 1.4
                                                                            percent in the first half of 2007. It was evident from an
                                                                            increased sale of commercial cars and an increased import of
                                                                            capital goods of 7.6 percent. Significant improvements were
                                                                            apparent in electrical machinery1, agricultural machinery and

                                                                         Imports of electrical machinery were accounted for 34 percent of total capital
                                                                        goods import.

Office of National Economic and Social Development Board                                                                                                  3
Economic Performance in Q3 and Outlook for 2007 - 2008                                                                 December 3, 2007

                                                                  equipments made of rubber and metal. Private investment in
                                                                  construction expanded by 0.7 percent, recovered from the
                                                                  contraction of 1.2 percent in the second quarter. Investment in
                                                                  construction of residential and commercial buildings increased
                                                                  by 1.9 and 5.1 percent. Construction in manufacturing industry
                                                                  also showed a better sign, albeit a 7.9 percent decline.

                                                                  One of the key supporting factors for private investment in the
                                                                  third quarter is rising capacity utilization to nearly full capacity
                                                                  in various industries such as paper, chemical product,
                                                                  automobiles, integrated circuits and washing machine.
                                                                  Moreover, business confidence improved due to the
                                                                  improvement in political situation following the approval of the
                                                                  new constitution and the announcement of the election date.
                                                                  Moreover, economic driving measures implemented by the
                                                                  government have made progresses.
(%)                          Q1     Q2     Q3p     H1      9Mp
Total capacity utilization   76.0   75.1   76.4    75.5    75.8   In the first three quarters of 2007, however, private
Beverage                     84.1   79.0   76.7    81.5    79.9
Paper and products           89.1   91.6   91.6    90.3    90.8   investment decreased by 0.6 percent, in which machinery
Chemical products
Petroleum products
                                                                  and equipment investment decreased by 0.7 percent and
Construction materials       82.6   76.1   81.6    79.4    80.1   construction investment decreased by 0.4 percent.
Automobile and parts         76.2   78.5   85.5    77.4    80.1
Electronics products         73.6   74.6   88.0    74.1    78.7
Others                       78.7   78.0   77.7    78.4    78.1   Household consumption picked up modestly. In the third
Source: Bank of Thailand
                                                                  quarter, household expenditure expanded by 1.9 percent,
                                                                  compared to 1.3 percent and 0.8 percent in the first and
                                                                  second quarters, respectively. Consumption in durable goods
                                                                  rose by 0.4 percent, a sharp turnaround from a contraction of
                                                                  7.4 percent in the first half year. Consumption in passenger
                                                                  cars and household electrical appliances (e.g., television, rice
                                                                  cooker, refrigerator and washing machine) increased due to
                                                                  aggressive sales promotion and fixed installment with low
                                                                  interest rates. Consumption in semi-durable goods expanded
                                                                  by 0.9 percent, compared with a contraction of 0.2 percent in
                                                                  the first half and consumption in non-durable goods,
                                                                  particularly foods, expanded by 2.2 percent.

                                                                  Nonetheless, overall private consumption in the first three
                                                                  quarters remained weak, expanded by only 1.3 percent.
                                                                  Consumption in durable goods dropped by 4.9 percent and
                                                                  consumption in semi-durable and non-durable goods slowed
                                                                  down. On the contrary, food consumption rose by 3.3

                                                                  Export slowed down both in agriculture and
                                                                  manufacturing products. In the third quarter, exports
                                                                  expanded by 12.6 percent, softened from 18.9 percent in the
                                                                  first half of 2007. Export volume and price increased by 7.8
                                                                  and 4.5 percent respectively. However, export value in Thai
                                                                  baht expanded by only 1.8 percent and export price dropped
                                                                  by 5.5 percent. This was due to concerns over the US sub-
                                                                  prime effects on the economy and the Baht appreciation. In
                                                                  the third quarter, Thai Baht averaged 34.06 baht per US
                                                                  dollar, appreciating by 6.88 percent from the forth quarter of
                                                                  last year, led to some postponement of exports. This was
                                                                  revealed in the slowdown of exports in July and September.

Office of National Economic and Social Development Board                                                                             4
Economic Performance in Q3 and Outlook for 2007 - 2008                                                          December 3, 2007

                                                                  Sluggish growth of agricultural product exports,
                                                                  expanded only by 2.6 percent, compared to a strong
                                                                  growth of 16.0 percent in the first half of the year. The
                                                                  slowdown was contributed mainly by the slowdown in
                                                                  volume term. Major export products which declined
                                                                  included (1) rubber which the supply-drop caused by heavy
                                                                  rainfall and (2) cassava due to a high base effect of export
                                                                  to China in the third quarter of last year for ethanol
                                                                  production. Meanwhile, lower price postponed export of
                                                                  Export of manufacturing products expanded well
                                                                  within the same product group as in the earlier period.
                                                                  Export of manufacturing products grew by 13.8 percent,
                                                                  compared to 19.6 percent in the first half of 2007. Main
                                                                  driver of manufacturing product export growth remained
                                                                  the same product group including computer, air-
                                                                  conditioner, refrigerator, fan, gems and jewelry, plastic,
                                                                  vehicles and parts, and paper products. However, export in
                                                                  other categories of manufacturing product experienced
                                                                  sharp slowdown. They are microwave, circuit breaker,
                                                                  metal product, motorcycle, radio, and rubber product.
                                                                  Products that started to decline included petrochemical and
                                                                  communication products. Meanwhile, exports of color
                                                                  television, caned pineapple and furniture continued to fall.
                                                                  Export of electrical appliances was stimulated by the
                                                                  global climate change, especially in cool-made electrical
                                                                  appliances such as air-conditioning, refrigerator, freezer,
                                                                  and fan. This followed rising demand in the Euro area due
                                                                  to global climate change that created heat wave in the past
                                                                  couple of years. In addition, demand for refrigerators and
                                                                  frozen container as well as electric fan in Asia had
                                                                  considerably risen. Nonetheless, export of color television
                                                                  and radio receiver continuously slowed down following a
                                                                  decline in export to the US which is major market. This is
                                                                  due to the GSP privileges cut from the US for importing
                                                                  color television, effective since July 2007. Moreover, Thai
                                                                  export has experienced more competition from South
                                                                  Korea who has competitive edge in high-technology
                                                                  Export of electronics continued to grow, albeit a
                                                                  slowdown in world semiconductor and weakening
                                                                  intra-regional trade in electronics. As one of the largest
                         Major export markets
(% YOY)           2006       2007 Q1       Q2      Q3      9M     manufacturers, accounted for 40 percent of the world
USA               14.5          2.2       -1.6    -9.1     -3.2   market and with technological advancement towards digital
Japan              8.8         17.3       12.5     3.0     10.7
EU 15             18.0         22.4       24.4    10.4     18.7   featured products namely stereo, camera, mobile phone
ASEAN 5            6.7         11.6       18.8     8.3     12.7   and television, Thailand continued to enjoy high growth in
Hong Kong         16.2          6.2        6.6    28.6     15.1
Taiwan            23.7         32.5       -4.6   -22.3     -0.1   export of hard disk drive.
South Korea       17.0         14.1       13.8     5.2     10.8
Middle East       27.1         20.3       51.4    31.8     34.4    Structural shift in the export markets of key products
India             17.9         64.5       61.8    56.9     60.6
China             27.7         20.2       35.0    25.9     27.0
                                                                  to new markets helps cushion export slowdown in
                                                                  major markets. Significant changes were observed in key
                                                                  products namely electronics, chemical, plastic goods and
                                                                  vehicles, exporting to the new markets such as China,
                                                                  India, East Europe and the Middle East. This has

Office of National Economic and Social Development Board                                                                      5
Economic Performance in Q3 and Outlook for 2007 - 2008                                                        December 3, 2007

                                                              cushioned a slowdown in major markets which was seen in
                                                              a contraction in export to the US and Japanese markets of
                                                              9.1 and 3.0 percent.

                                                           Import continued to grow. In the third quarter, import value
                                                           expanded by 8.4 percent with the same growth rate of 4.1
                                                           percent in both quantity and price. In term of quantity, import
                                                           expanded in all categories except for oil import. Import of raw
                                                           materials increased by 13.4 percent in line with favorable
                                                           export performance and a pick up in domestic demand,
                                                           especially steel, metal products, gems and jewelry and
                                                           integrated circuits. In the mean time, import of capital goods
                                                           grew by 7.3 percent with 5.2 percent volume growth. This was
                                                           in tandem with a revival in domestic investment in particular
                                                           electrical machinery, agricultural machinery and computer
                                                           parts. There was an import of one aircraft in September.
                                                           Meanwhile, import of consumer goods such as dairy products,
                                                           glass lens and electrical appliances expanded dramatically as
                                                           a result of a Baht appreciation. Import of fuel and lubricants
                                                           dropped by 3.3 percent resulting from a 6.4 percent reduction
                                                           in crude oil import value, while import value of petroleum
                                                           product expanded by 4.5 percent. Shift in energy consumption
                                                           toward alternative energy source (gasohol, bio-diesel and
                                                           EGV gas) was partly contributed to a 5.8 percent decline of
                                                           fuel and lubricant import volumes and 3.6 percent decline in
                                                           volume of crude oil import.

                                                           In the first three quarters, import value increased by 7.3
                                                           percent, with 3.5 percent increase in quantity and 3.6 percent
                                                           increase in price. Import of capital good, raw materials and
                                                           semi-finished goods and finished goods rose by 2.7, 13.6 and
                                                           9.1 percent respectively. Nevertheless, fuel import fell by 3.4
                                                           percent owing to a reduction of crude oil import and of
                                                           petroleum products import by 8.1 and 0.1 percent respectively.

                                                            Trade balance was in a surplus of 2,942 million US dollar in
                                                           the third quarter of 2007 which equal to 100,567 million baht.
                                                           For the first nine months of 2007, trade balance recorded a
                                                           surplus of 8,023 million US dollar or 278,914 million baht.

                                                            Current account registered a surplus of 2,928 million US
                                                           dollar in the third quarter of 2007 which equal to 99,297 million
                                                           baht. For the first nine months, current account surplus
                                                           reached 9,262 million US dollar or 323,375 million baht.

                                                            Production side: Sector improving from the previous quarter
                                                           was manufacturing sector with 9.0 percent growth, compared
                                                           to 6.0 and 5.6 percent in the first two consecutive quarters.
                                                           Major productions were export-oriented namely hard disk
                                                           drive, air-conditioner and rubber glove. Meanwhile, key
                                                           products for domestic consumption still experienced a
                                                           contraction due to a slack in domestic demand such as textile,
                                                           cement, steel and products and motorcycle.

Office of National Economic and Social Development Board                                                                    6
Economic Performance in Q3 and Outlook for 2007 - 2008                                                                     December 3, 2007

                                                                        However, production of passenger cars and commercial cars
                                                                        started to recover in line with higher domestic sales and
                                                                        continued increase in export. Construction sector grew by only
                                                                        1.4 percent since private construction expanded moderately,
                                                                        picking up from continual contraction in the first two quarters.

                                                                        Agricultural sector expanded by 4.0 percent, lower from 7.5
                                                                        percent due to a speed up in harvesting during the same
                                                                        period last year in order to alleviate further damage from flood.
                                                                        Rubber production also declined as a result of heavy rainfall in
                                                                        the plantation area.

                                                                        In the first nine months, agriculture, manufacturing and service
                                                                        and others grew by 5.0, 5.0 and 4.0 percent respectively.

                                                                         Economic stability: Inflation and unemployment rate
                                                                        remain low.

                                                                           Inflation rate remains low. In the third quarter of 2007,
                                                                           headline inflation was 1.6 percent lower than 2.2 percent in
                                                                           the first half of the year, mainly due to appreciation of baht
                                                                           which led to lower cost of imported goods. The drops were
                                                                           seen in mobile phone service charges, Ft cost and thus
                                                                           electricity charge rate. However, headline inflation surged
                                                                           to 2.5 percent in October with 10 months average of 2.1
                                                                           percent. Core inflation rate in the third quarter was 0.7
                                                                           percent lower than 1.2 percent in the first half of 2007. In
                                                                           October core inflation increased to 1.0 percent, which was
                                                                           equal to 10 months average. Moreover, producer price
          (% YOY)                  2006  2007
                                   Avg.   Q1     Q2      Q3     Avg.
                                                                           index rose by 1.5 percent in the third quarter and increased
Population                           0.3   0.7    0.7     0.7     0.7      to 4.4 percent in October. For the first 10 months,
Labor force                          0.8   1.4    0.7     2.0     1.4
Employment                           1.2   1.8    0.7     2.1     1.5      producer price index increased by 2.2 percent.
  Agriculture                        4.1   2.8   -0.5     1.2     1.1
  Non-agriculture                   -0.6   1.2    1.5     2.9     1.8
   Manufacturing                    -1.5   0.2    1.3     5.4     2.2      Employment The number of employed person in the third
   Construction                      1.0   1.6    1.5    -4.9    -0.4
   Wholesale/Retail trade           -0.7   0.6    0.4     2.3     1.1      quarter were 37.21 million people, rose by 2.1 percent
   Hotel and restaurant
                                                                           compared with the same period last year. In addition,
Unemployed person                  -16.8 -11.9   -2.8    -1.7    -6.0      numbers of employment in agricultural sector were 15.08
Seasonal inactive labour force      -9.5 -10.2    7.7   -34.9    -5.2
Under employment                   -23.4  22.4   19.7    -3.0    12.7      million people, increased by 1.2 percent from the same
Unemployment                         1.5   1.6    1.6     1.2     1.5      period last year due to favorable weather conditions. Non-
Source: National Statistics Office, compiled data by Office of Social
Development and Quality of life, NESDB                                     agricultural sector employed 21.63 million people.
                                                                           Employment in manufacturing sector expanded by 5.4
                                                                           percent, mainly due to increasing exports of frozen seafood
                                                                           and rubber products. Employment in hotel and restaurant
                                                                           and real estate sector also increased by 4.0 percent and
                                                                           8.8 percent respectively. By the end of the third quarter,
                                                                           the social security scheme had covered 380,313 firms and
                                                                           8.79 million employees, increased from the same period of
                                                                           last year by 1.9 and 2.9 percent respectively. The
                                                                           unemployment rate remained relatively low at 1.2 percent
                                                                           in the third quarter. However, unemployed with upper
                                                                           college graduated level are accounted for 20 percent of
                                                                           total unemployment, while vocational and technical
                                                                           unemployed person were around 6.3 and 7.5 percent. This
                                                                           reflected the qualification mismatching in labor market. For
                                                                           the first nine months, the overall employment expanded by
                                                                           1.5 percent and the unemployment rate were 1.5 percent.

Office of National Economic and Social Development Board                                                                                 7
Economic Performance in Q3 and Outlook for 2007 - 2008                                                                            December 3, 2007

                                                                                  Petroleum consumption has significantly shifted toward
                                                                                  gasohol, bio-diesel and LPG. Petroleum consumption
           (%YOY)                                         2007                    continually accelerated from 2.3 percent in the first half of
                                  Q1           Q2             Q3         9M
Total    petroleum     products
                                                                                  2007 to 3.8 percent in the third quarter. Total diesel
                                        2.6       2.0           3.8       2.8
consumption 2                                                                     consumption increased by 5.6 percent compared with 0.4
Benzene                                 2.7       1.6            4.4       2.9
   - Octane (91 + 95)                   2.4       -2.8          -4.7      -1.7
                                                                                  percent in the first half of 2007. In addition, the high speed
   - Gasohol                            3.8       21.7         46.2      24.0     diesel and low speed diesel consumption rose by 1.9
Diesel                                 -0.1       0.8           5.6       2.0
   - HSD+LSD                           -0.8       -1.1           1.9      -0.1
                                                                                  percent while Bio-diesel (B5) consumption substantially
   - HSD B 5                       1,185.5      1,034.0       1,768.3   1,335.7   grew by 1,768.3 percent. Total gasoline consumption grew
LPG                                   17.6        13.5         10.2      13.6
Natural gas for cars                 88.47      116.21        113.29    107.04
                                                                                  by 4.4 percent. This was mainly due to the expansion of
Source: Energy Policy and Plan Office
                                                                                  gasohol consumption by 46.2 percent while benzene 91
  Including Diesel, Benzene, Fuel oil, JP and LPG
                                                                                  and 95 continued to decline by 4.7 percent. As a result of
                                                                                  high oil price, the consumption pattern has also shifted
                                                                                  toward LPG and NGV which recorded 10.2 and 113.29
                                                                                  percent increase respectively. For the first nine months,
                                                                                  petroleum consumption increased by 2.8 percent. High
                                                                                  speed diesel and Low speed diesel consumption declined
                                                                                  by 0.08 percent while demand for bio-diesel (B5) rose by
                                                                                  1,335.7 percent. Consumption of benzene 91 and 95
                                                                                  decreased by 1.7 percent while gasohol consumption
                                                                                  increased by 24 percent. LPG and NGV consumption
                                                                                  expanded by 13.6 and 107.04 percent respectively.

                                                                                  External stability International reserve stood at 82.4
                                                                                  billion US dollar at the end of October 2007, equivalent to
                                                                                  3.8 times of short-term foreign debts or 7.3 months of

                                                                                  Fiscal cash balance recorded a surplus of 30,970.6
                                                                                  million Baht in the fourth quarter of fiscal year 2007 (July –
                                                                                  September 2007). Government revenue collection was
                                                                                  386,701.9 million baht, increased by 11.4 percent from the
                                                                                  same period of 2006, whereas government expenditure
                                                                                  was 420,222.3 million Baht, increased by 13.4 percent.
                                                                                  Hence, fiscal balance recorded a budget deficit of 33,520.5
                                                                                  million Baht. The non-budgetary surplus of 64,491.1 million
                                                                                  baht, however, turned the cash balance to a surplus of
                                                                                  30,970.6 million baht, decreased by 15.4 percent from the
                                                                                  same period of last year.

                                                                                  In fiscal year 2007, the government ran budgetary deficit of
                                                                                  131,238.6 million Baht, lower than the projection of
                                                                                  146,000 million baht deficit. The non-budgetary deficit of
                                                                                  27,492.8 million baht, added fiscal cash balance up to
                                                                                  158,731.4 million baht. This deficit was financed by
                                                                                  issuance of government bond and promissory notes.

                                                                                  Public Debt At the end of September 2007, public debt
                                                                                  stood at 3.17 trillion baht, equivalent to 37.84 percent of
                                                                                  GDP, increasing from 37.72 percent of GDP at the end of
                                                                                  June 2007 but decreasing from 41.28 percent of GDP at
                                                                                  the end of September 2006.

    Including Diesel, Benzene, Fuel oil, JP and LPG

Office of National Economic and Social Development Board                                                                                        8
Economic Performance in Q3 and Outlook for 2007 - 2008                                                      December 3, 2007

                                                           Financial conditions: Interest rate declined. Bank
                                                           deposits    decelerated.   Commercial   Banks’    credit
                                                           accelerated but liquidity remained high. Currency and
                                                           stock markets became more volatile due to fluctuation in
                                                           global financial market. Nominal exchange rate of Thai
                                                           baht appreciated but real effective exchange rate
                                                           depreciated. SET index increased.

                                                             The policy rate was cut The Monetary Policy Committee
                                                             (MPC) decided to lower policy rate once, by 25 basis
                                                             points in July to 3.25 percent per annum, in response to
                                                             the slowdown in domestic consumption and lessened
                                                             inflationary pressure. The MPC kept the policy rate
                                                             unchanged in August and October. The Federal Reserve
                                                             Board lowered Fed Fund Rate in September by 50 basis
                                                             points and by another 25 basis points in October to 4.5
                                                             percent. Euro zone and Japan maintained policy rate at 4.0
                                                             and 0.5 percent consecutively.

                                                             Commercial banks’ time deposit and lending rate were
                                                             adjusted downward in accordance with lower policy
                                                             rate. Average 3-month time deposit rate of five major
                                                             commercial banks decreased from 2.38 percent to 2.13
                                                             percent per annum at the end of the third quarter. In
                                                             addition, 12-month deposit rate was lowered to 2.32
                                                             percent per annum in October. The MLR lending rates
                                                             were reduced to 6.99 percent per annum at the end of
                                                             October. The accelerating inflation rate in October caused
                                                             the real 12-month time to be negative at -0.19 and real
                                                             lending rate to decline to 4.5 percent per annum.
                                                               Commercial banks’ deposits slowed down. At the end
                                                             of the third quarter, deposits expanded from the same
                                                             period of 2006 by 2.4 percent, decelerating from 2.6
                                                             percent growth in the previous quarter. This was mainly
                                                             due to (1) the continued reduction in deposit rates (2) the
                                                             shift of time deposit toward BOT bond and (3) the increase
                                                             in the issuances of bills of exchange by commercial bank.
                                                               Commercial banks’ credits expanded by 3.8 percent
                                                             accelerating from 2.9 percent in the second quarter, mainly
                                                             due to the high growth of consumer and financial
                                                             intermediation loans. However, credits in other sectors
                                                             have slowed down. Particularly, manufacturing credits
                                                             continued to decline at a faster rate as business
                                                             investment has not been recovered. Credit card spending,
                                                             outstanding balance and cash advance slowed down

                                                             Liquidity in banking system remained high. Credits to
                                                             deposits ratio was at 93.5 percent at the end of the third
                                                             quarter. In addition, excess liquidity in the banking system,

Office of National Economic and Social Development Board                                                                  9
Economic Performance in Q3 and Outlook for 2007 - 2008                                                     December 3, 2007

                                                           estimated    as      disposable  liquidity,  accumulated
                                                           continuously to approximately 919.7 billion at the end of
                                                           September compared to 848.6 billion in June. Hence, BOT
                                                           absorbed liquidity via the REPO market continuously.

                                                           NPLs in financial institutions excluding BIBF and credit
                                                           fanciers increased from the previous quarter by 6.2 billion
                                                           baht, to 260.4 billion baht, equivalent to 4.43 percent of the
                                                           total credits at the end of the third quarter. Foreclosed
                                                           property or NPAs, however, slightly decreased to 166
                                                           billion baht.

                                                           Thai commercial banks reported net profit of 9.65
                                                           billion baht, compared to net loss of 12.88 billion baht in
                                                           the last quarter and net gain of 22.873 billion baht in the
                                                           third quarter of 2006. Although some banks suffered from
                                                           investment in Collateralized Debt Obligations (CDOs),
                                                           increasing net interest income and declining provision
                                                           requirement helped commercial banks to maintain their

                                                           Exchange rate fluctuated in accordance with global
                                                           financial conditions. Thai baht rapidly appreciated in July
                                                           due to increasing capital inflow into the stock market and
                                                           depreciated during late July - August as the US sub-prime
                                                           crisis led capital flows to unwind. Average exchange rate in
                                                           the third quarter was 34.01 baht per US dollar, appreciated
                                                           by 1.8 and 9.7 percent from the previous quarter and the
                                                           same period of last year respectively. This is mainly due to
                                                           the surplus in the current account and net capital inflows.
                                                           As Thai baht appreciated at a faster rate than major
                                                           currencies except Euro and Yen, thus the average nominal
                                                           effective exchange rate (NEER) appreciated by 0.7 percent
                                                           from the second quarter and the real effective exchange
                                                           rate (REER) depreciated by 0.2 percent due to relatively
                                                           slowed down in inflation. Nine-month exchange rate
                                                           average was at 34.73 baht per US dollar and 34.12 baht
                                                           per US dollar in October.

                                                           Corporate funding declined markedly. The issuance of
                                                           new securities in the third quarter worth 15.4 million baht
                                                           compared to 49.6 million baht in the previous quarter and
                                                           92.2 million baht in the same period of last year. Fund
                                                           raised by both financial and non-financial sectors dropped
                                                           from the same period of last year by 24.2 and 52.6 million
                                                           baht respectively. Overall accumulated funding in the past
                                                           9 months was 107.6 million baht declined from 241.7
                                                           million baht at the same period of last year.

                                                           Stock market rallied with fluctuation of foreign capital
                                                           flows. Daily trading was averaged at 21.9 billion baht,
                                                           increased by 15.1 percent from the second quarter. SET
                                                           index closed at 845.5 points compared to 776.8 percent at
                                                           the end of the second quarter, particularly, energy and
                                                           petrochemical    sectors     gained   from    oil   price

Office of National Economic and Social Development Board                                                               10
Economic Performance in Q3 and Outlook for 2007 - 2008                                                      December 3, 2007

                                                                 Nevertheless, inflationary pressures have increased
        surges. Stock index fluctuated in July and August,
                                                                 during September and October following rising oil
        rising to 884.2 points at mid of July and plunged to
                                                                 prices, up to 2.7 and 3.5 percent respectively.
        750.7 points in mid August resulted from US sub-
        prime effect. Nevertheless, foreign capital still        Euro Zone economy grew by 3.0 percent, slightly
        flowed into regional and Thai stock markets              improved from 2.9 percent in the second quarter (or
        stimulating by three main reasons; (1) slowdown in       0.7, qoq, sa, up from 0.3 percent in the second
        US housing market and Fed Fund rate cut in               quarter). This was contributed by to stronger growth of
        September (2) weakening dollar and (3)                   the major economies –primarily Germany, France,
        expectation of further interest rate cut. SET index      Italy and the Netherlands following a recovery in
        closed at 907.3 points at the end of October with        investment. Private consumption also remained
        averaged 9-month daily trading of 16.3 billion baht      buoyant due to better employment condition and
        and foreign investors recorded a net buy of 95.3         increasing consumer confidence. However, export
        billion baht.                                            growth somewhat softened in line with a slowdown in
                                                                 world demand and a strong Euro currency. Inflation
           Bond trading accelerated. Daily average
                                                                 increased in September and October to 2.1 and 2.5
        outright trading increased from 42 billion baht in
                                                                 percent respectively.
        the previous quarter to 44 billion baht. Net buy of
        foreign investors recorded at 7.9 billion baht,
        turnaround from net sale of 52.8 billion baht in the
                                                                 Japanese economy grew by 2.1 percent, up from 1.5
        first half of the year. The price index declined
                                                                 percent in the previous quarter. Strong exports
        slightly. The government bond yields increased,
                                                                 remained key driving forces and recovered private
        particularly those of long-term bond.
                                                                 consumption was the key driver of the economy which
                                                                 help offset a sharp drop in residential investment as a
                                                                 result of the implementation of the revised building
1.2 World economic performance in the                            standards law, causing a bottlenecks in the approval
   third quarter of 2007                                         process. Consumer price index dropped by 0.2
                                                                 percent in September.
Global economy in the third quarter exhibited a
stronger growth than the second quarter. Growth                  Chinese economy remained strong with 11.5 percent
improved in all major economies including the US,                growth, compared with 11.9 percent in the previous
Japan, Euro zone and Asian economies and                         quarter. The economy still showed a double digit
exceeded earlier expectations. Nevertheless, in the              growth despite continued government policies to cool
first nine months of 2007, overall global economy                down the economy. Underlying drivers of the economy
slowed down from 2006 as a result of prolonged                   included strong fixed asset investment bolstered by
financial market turbulence following the sub-prime              rising profitability and expanded credits in the private
crisis in the US. Concurrently, recent surge in oil              sector, and favourable private consumption and strong
prices has also put upward pressure on consumer                  exports. Export and import value expanded by 26.2
prices.                                                          and 20.7 percents, resulting in trade surplus of 73.2
                                                                 billion US dollars. Meanwhile, inflation persistently
   The US economy expanded by 2.6 percent (or 3.9
                                                                 accelerated to 6.1 percent in the third quarter, from 2.7
   percent, qoq, annualized rate on its advanced
                                                                 and 3.6 percent in the first and second quarters,
   estimates), speeding up from 1.5 and 1.9 percent in
                                                                 mainly caused by food price increases. In the first ten
   the first two quarters. This was due mainly to stronger
                                                                 months, inflation was averaged at 4.4 percent,
   exports and a pickup in personal consumption as well
                                                                 exceeding the 3.0 percent target set by the central
   as     favourable       investment    in    non-residential
                                                                 bank for 2007.
   construction and machinery and equipments.
   However, investment in residential construction               Asian economy performed well, based primarily on
   continued to fall following a housing market slump due        their stronger domestic demand in tandem with
   to sub-prime problems. This led to overall investment         accommodative monetary and fiscal policies. This
   contraction. Despite continual declines in housing            helped compensate the impact of export slowdown.
   starts since the second quarter of 2006, housing              However, exports were cushioned by a rise in trade
   inventory continued at high level as a result of sharp        with non-US markets, particularly China and India and
   decline in existing home sales of about 8.3 percent this      uptrend of world commodity prices. In all, current
   quarter. Home prices, therefore, fell continuously. On        account surpluses remained high. Inflationary
   stability front, inflation declined to 2.4 percent against    pressures subsided more than expected, owing in part
   the backdrop of slowing growth in shelter cost.               to currency appreciation.

Office of National Economic and Social Development Board                                                                11
Economic Performance in Q3 and Outlook for 2007 - 2008                                                         December 3, 2007

   In the first nine months of 2007, world economy                 more resilient under higher oil prices. Baht
   slowed down from 2006 owing to a more                           appreciation also helped ease pressure on inflation.
   pronounced US economic slowdown as being
                                                                    Stability remained in a good condition. Headline
   overshadowed by the sub-prime mortgage crisis which
                                                                   Inflation rate average at 2.3 percent in 2007 with 1.5
   triggered housing sector slump and global financial
                                                                   percent unemployment rate and 13,900 million baht of
   market     turbulence.  Japanese     economy   also
                                                                   current account surplus or about 5.7 percent of GDP.
   experienced a moderate growth owing to softened
   domestic investment and declining export in
   automobile industry. Nevertheless, major economies
   showed a better-than-expected growth, namely Euro            4. Economic Outlook for 2008
   Zone and Asian economy in particular China and
   India. Strong domestic demand and growing intra-
   regional trade led economic expansion                        4.1 World economic outlook in 2008: The
                                                                    World economy is expected to grow at a
                                                                    rate of 4.5 percent, slightly down from
2. Economic Prospects for Q4/                                       4.8 percent in 2006.
   2007                                                         The World economy in 2008 is expected to grow at a
    In the last quarter of 2007, it is likely that positive     moderate rate of 4.5 percent, slightly down from 4.8
    factors will be more pronounced than risk factors.          percent in 2006. The slower pace of growth is
    Positive factors included certain political situation and   attributable to weaker economic performances in the US,
    clarity about the upcoming election, low interest rate,     Japan, Euro zone and China. Nonetheless, there are
    raise in government and state agency officers’              remaining downside risks emanating from the lingering
    salaries, improving confidence of manufacturing             impacts of sub-prime crisis, appreciation pressures on
    sector and businesses, and target achievement of            major currencies, upward trend of oil prices since the
    22.5 percent government budget disbursement (the            latter half of 2007 that raise inflationary pressure and will
    target disbursement totalled 373,500 million baht).         render policy intervention difficult. The US economy is
                                                                expected to grow at a rate of 1.9 percent, bellow its
   Private consumption and investment in the last quarter       potential rate for the second consecutive year. Current
   are on upward trends. Although export is likely to           account position is expected to improve gradually as a
   slow down in the last two months a robust export             reduction in aggregate income reduces import demand
   growth of 27.9 percent in October would lead export          but the real depreciation of the US currency will boosts
   value in the last quarter to expand at a comparable          her exports. Growth in Euro zone is expected to slow
   rate as in the third quarter. Import growth will             down from 2.8 percent in 2007 to 2.4 in 2008 as a result
   strengthen following investment recovery. Therefore,         of dampening export effects from the US as well as the
   stronger domestic demand would offset the export             lagged impacts of currency appreciation and financial
   slowdown in the last two months.                             market correction. Japan’s economic growth is also likely
                                                                to slow down due declining import demand from its major
                                                                trading partners and sluggish domestic demand
3. Economic Projection for 2007:
   expected GDP growth of at
   least 4.5 percent.
     Office of the National Economic and Social
    Development Board (NESDB) forecasts that the Thai
    economy will expand at least than 4.5 percent in
    2007. This based on the positive factors of high case
    scenario on the previous press release in September,
    including world economic situation, government
    budget disbursement and private consumption and
    investment recovery. Despite higher-than-expected
    crude oil price, pressures on inflation have been
    moderate since oil consumption structure has
    improved and thus make adjustment process to be

Office of National Economic and Social Development Board                                                                   12
  Economic Performance in Q3 and Outlook for 2007 - 2008                                                                                 December 3, 2007

                           World Economic Outlooks                                        Growth outlook for Asian developing countries remains
                (% change from the same period of previous year)
                                                                     2007 2007 2008
                                                                                          robust. The strong expansion in domestic demand and
                            2006                       2007            F    F    F        intraregional trade is expected to partially offset import
                                                                                          demand        reduction    in    advanced      economies.
              Q1     Q2     Q3     Q4     Year   Q1    Q2     Q3     Sep    Dec    Dec
                                                                                          Nevertheless, growth in China and India are expected to
World         5.3    5.0    4.6    4.8    4.9    4.6   5.0    5.3    4.7    4.8    4.5    slow down slightly from 11.5 and 8.9 percent in 2007 to
USA           3.3    3.2    2.4    2.6    2.9    1.5   1.9    2.8    1.9    1.9    1.9
                                                                                          10.6 and 8.4 percent in 2008 respectively, in an attempt
                                                                                          to cool down their overheated economy and to suppress
Euro          2.4    2.9    2.8    3.3    2.9    3.5   2.9    3.0    2.6    2.8    2.4
                                                                                          inflationary pressure that has risen since the second half
Japan         3.0    2.1    1.4    2.2    2.2    2.5   2.3    2.1    2.3    2.0    2.0    of 2006. Therefore, Asia tends to slow down slightly in
Hong Kong     8.1    5.6    6.8    7.3    6.9    5.7   6.9    6.2    5.5    6.0    5.4    2008.
Singapore     10.1   8.0    7.0    6.6    7.9    6.4   8.7    8.9    7.0    7.5    6.0
                                                                                          Downside risk factors for the world economy in 2008 are
South Korea   6.3    5.1    4.9    4.0    5.0    4.0   4.9    5.2    4.7    4.8    5.0    including (i) high and volatile oil prices (ii) the correction
Taiwan        5.0    4.7    5.1    4.0    4.7    4.2   5.1    6.9    4.3    5.3    4.0    of real estate sector in the US to sub-prime crisis and
Indonesia     5.0    5.0    5.9    6.1    5.5    6.0   6.3    6.5    6.0    6.2    6.4
                                                                                          valuation losses in financial system both in the US and
                                                                                          Europe (iii) risks emanating from international political
Philippine    5.7    5.5    5.1    5.5    5.4    7.1   7.5    6.6    5.9    6.6    6.0
                                                                                          tensions, in particular, the potential confrontation
Malaysia      6.0    6.1    6.0    5.7    5.9    5.5   5.7    6.7    5.6    5.8    5.8    between Iran and the US over nuclear conflict.
              10.3   11.5   10.6   10.4   11.1 11.1    11.9   11.5   11.3   11.5   10.6
                                                                                          Recent increase in oil and food prices put an upward
Vietnam       7.3    7.4    8.8    8.9    8.2    7.7   8.8    8.7    8.3    8.3    8.5    pressure on inflation. However, as the impacts of
  Source: CEIC, Public agencies and average value from many sources                       financial turbulence persist, central banks in advanced
                                                                                          countries are expected to be more cautious in their policy
                                                                                          stances and stand ready for economic stimulation if
                                                                                          adverse      impacts    on     real     activities   heighten.
                                                                                          Expansionary policy stance is expected in the US
                                                                                          economy. Japan and Euro zone are likely to refrain from
                                                                                          interest rate increases until inflation risks are increasingly
                                                                                          intensified and concerns over the impacts of financial
                                                                                          turbulence have eased. However, a number of
                                                                                          developing countries are likely to apply further monetary
                                                                                          policy tightening to slow down their overheated economy
                                                                                          and to suppress inflationary pressure that has escalated
                                                                                          since the second half of 2007.
                                                                                          Driven by economic slowdown in advanced economies,
                                                                                          interest rate gap and US dollar depreciation, net large
                                                                                          capital flow to developing countries is expected to
                                                                                          continue in 2008. This situation puts an upward pressure
                                                                                          on domestic currency appreciation for host countries with
                                                                                          floating exchange rate system. Those countries with the
                                                                                          fixed exchange rate regimes are likely to face with policy
                                                                                          difficulties in their attempts to suppress overheated
                                                                                          economy and inflation pressure as world inflation will be
                                                                                          imported to their economies. In addition, lagged impacts
                                                                                          of continued US currency appreciation increasingly affect
                                                                                          world trade direction. The US economy is likely to
                                                                                          experience a period of sluggish domestic demand and
                                                                                          gradual net export expansion. Therefore, import
                                                                                          demands in other countries are likely to become the main
                                                                                          growth engine for the world economy.

  Office of National Economic and Social Development Board                                                                                           13
Economic Performance in Q3 and Outlook for 2007 - 2008                                                        December 3, 2007

(1) The US economy in 2008 is subjected to downside                 sector has yet to bolster labor wage and hence
    risks emanating from sub-prime crisis. In particular,           stimulate domestic spending. As a result,
    to some extent the crisis will spill over to investment,        deflationary pressure persists, although at a slower
    household balance sheets and consumption                        pace than in previous episodes. In overall, growth in
    spending. The most recent indicators suggest that               Japan is expected to slow down from 2.0 percent in
    the economic correction has not yet bottomed out                2007 to 1.7 percent in 2008. Therefore, the current
    as consumer confidence and housing price indexes                policy interest rate is expected to be on hold at least
    have continued to drop. Without additional report on            throughout the first half of 2008.
    valuation losses in financial system, the impacts of
                                                               (4) Chinese economy remains robust. The solid
    housing market correction are likely to be more
                                                                   growth is expected to hold steady at the rate of 10.6
    sizable in fourth quarter of 2007 and in the first half
                                                                   percent in 2008. The robust growth outlook is
    2008. Therefore, the US economy is expected to
                                                                   attributable to strong investment and consumption
    maintain only a moderate growth rate of 1.9 percent
                                                                   expansion, whereby the latter is supported by an
    in 2008, due to the slowdown in investment and
                                                                   increase in employment and a better social
    consumption spending. However, real depreciation
                                                                   insurance system. Trade surplus tends to decrease
    of the US currency will contribute to the expansion
                                                                   slightly due to an abolition of export tax rebate that
    of the net real export and partially offset the
                                                                   raises export tax burden. On stability front, inflation
    slowdown in investment and consumption spending.
                                                                   pressure is expected to subside due to the lagged
    Current account deficit is expected to decline
                                                                   effects of previous policy tightening. However,
    gradually from 6.2 percent of GDP in 2006 to 5.5
                                                                   inflation outlooks are subject to uncertainty in
    percent in 2008. The decline in home prices and
                                                                   weather conditions that could potentially reduce
    sluggish consumption demand are likely to help
                                                                   crop production, as well as the possibility of utilities
    contain inflation pressure and accommodate
                                                                   rates hike. In addition, driven by excess liquidity, the
    expansionary policy stance that may be necessary
                                                                   booming in stock and real estate markets over the
    for restoring economic conditions if the adverse
                                                                   past few years raises concerns over the ability of
    impacts of housing market correction are stronger
                                                                   financial institutions to meet their obligations. This is
    than previously expected.
                                                                   because, in the situation of sharp stock price slump,
(2) The economy in Euro zone in 2008 is expected to                it could adversely affect financial mechanism.
    soften. It is expected that valuation losses in
                                                               (5) Asian economy continues to expand at a solid
    financial sector are exposed only in some advanced
                                                                   pace. In particular, growth rates in Malaysia
    economies while financial system is expected to
                                                                   Indonesia and Vietnam are expected to be higher
    gradually return to normal conditions. However,
                                                                   than in 2007. Key driver of growth outlook in Asia is
    trade spillover effects from the US and lagged
                                                                   strong     domestic      demand     supporting    by
    effects of euro appreciation tend to have further
                                                                   accommodative monetary and fiscal policies to
    dampening impacts on export growth. In addition,
                                                                   stimulate the economy. In the mean time, export will
    financial market correction that leads to cautious
                                                                   remain buoyant following electronics cycle upturn as
    credit extension is likely to drag on investment and
                                                                   well as robust growth of China and India that could
    consumption spending. Overall, growth in Euro zone
                                                                   maintain strong trade volume within the region.
    is expected to slow down from 2.0 percent in 2007
                                                                   However, exports will partly be offset by the
    to 1.7 percent in 2008. Therefore, monetary policy
                                                                   expected decline in world non-fuel commodity
    stance is likely to be on hold until inflationary
                                                                   prices. Import is expected to rise in line with
    pressure escalates and concern over the impacts of
                                                                   stronger domestic demand and domestic currencies
    financial turbulence subsides. Inflation is projected
                                                                   appreciation. In all, current account surplus in most
    at 2.0 percent while the current account deficit is
                                                                   countries will become smaller.
    expected to increase from 0.2 percent of GDP in
    2007 to 0.4 percent in 2008 due to the slowdown in
    the US economy and euro currency appreciation.
(3) Japanese economy is also expected to slow down.
    The export sector, the key driver of recent economic
    recovery, is facing with increasing demand
    uncertainties due to the slowdown in the US and
    Europe. Domestic demand condition has yet to
    improve. Investment in both residential and non-
    residential construction decreased as a result of
    stricter building standards. The recovery in business

Office of National Economic and Social Development Board                                                                  14
Economic Performance in Q3 and Outlook for 2007 - 2008                                                        December 3, 2007

4.2 Economic Projection for 2008: The Thai                         In 2008, energy efficiency will continue to improve
    economy will enter 2008 with more                               and demand for alternative energies such as gasohol,
                                                                    bio-diesel and NGV tends to increase. This changing
    favorable domestic conditions than in                           energy consumption behavior will lead to a better
    2007. However, external risks are                               economic adjustment to a surge in oil prices. In
    associated with the increase in oil                             addition, the uses of energy-saving and small cars
    prices and the world economic                                   are likely to increase continually, promoted by tax
    slowdown.                                                       incentive under Eco car and E20 promotion scheme.
                                                                    In this respect, car manufacturers such as Honda,
Key Themes                                                          Tata motors and Ford have prepared their production
                                                                    lines and are ready to launch small and energy-
    In 2008, the Thai economy is likely to grow at a                saving cars to the market in 2008.
    faster rate than in 2007. This is owing to the
    recovery in domestic demand for private investment           4.2.1 Supporting factors for the Thai economy in
    and consumption, higher government budget deficit                   2008
    and its disbursement acceleration, and the progress              (1) Consumer and business confidences are
    of state enterprise’s investment in the mass transit                 improving. In particular, political certainty has
    system. Domestic demand recovery will offset the                     been restored as the general election date and
    impact of slowdown in exports.                                       the setting up of new government are scheduled.
      Fundamental domestic conditions tend to                            Business confidence index started to increase in
    improve, including general political conditions and,                 August 2007 and continued to September as
    consumer and business confidences. Interest rates                    entrepreneurs increasingly expected that various
    are expected to remain at the current low levels.                    fundamental factors are improving such as
    Household incomes are expected to increase in all                    lowering interest rate, stable exchange rate and
    income classes, along with increasing farm income                    a better prospect of political environments. As for
    following the increase in agricultural prices, wages                 consumer confidence, the situation has been
    and salary increases for government and state                        stable since July. Encouragingly, August saw
    enterprise officials, and 1-7 baht minimum wage                      better confidence towards economic outlook.
    increase (Effective in January 1, 2008). Corporate               (2) Accelerating government budget disbursement
    profits are likely to be negatively affected by higher oil          to meet the target of 94 percent of total
    prices. However, the impacts of baht appreciation is                government budget in 2008 together with the
    expected to be less than in 2007 as baht is likely to               speeding up of state enterprise investment
    fluctuate in a narrower range.                                      projects: Government budget for fiscal year
   However, there are remaining key downside risks                      2008 is planned for 1,660,000 million baht, 6.0
   in 2008, in particular, rising oil prices and the                    percent higher than that of fiscal year 2007.
   world economic slowdown. The slowdown in the                         Current and investment expenditures are at
   world economy can be more severe than previously                     1,209,546.8 and 404,677.3 million baht,
   expected due possibly to 3 main conditions: (1) Oil                  respectively, 6.5 and 8.0 percent higher than
   prices increase and their volatility under tight market              those of fiscal year 2007. Fiscal deficit is set at
   conditions (2) Geopolitical concerns and (3) Sub-                    165,000 million baht. With respect to the state
   prime problem and market corrections in US real                      enterprise investment expenditure, government
   estate sector as well as their spill over effects to                 approved the budget of 289,756 million baht and
   financial and commodity market in Asia and Europe,                   additional 53,581 million baht investment plan for
   which are prolonged to 2008. These downside risks                    PTT Public Company Limited, with its associated
   can adversely affect consumer and business                           disbursement target of 90 percent of total
   confidences and spill over to real economic activities               investment expenditures. Key investment
   through raising production cost and lowering                         projects includes mass transit system, double-
   aggregate demand. In cases of more severe impacts                    track rail project (Chachoengsao – Sriracha -
   of risk factors, consumption and investment are likely               Laem-      Chabung      Port),    Thai    Airways’
   to recover at a slower pace and exports could                        procurement of aircraft and project of electricity
   slowdown sharply. In such cases, the Thai economy                    transmission lines which, together, are amounted
   in 2008 is likely to expand at a slower rate than in                 to approximately 40,000-50,000 million baht.

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Economic Performance in Q3 and Outlook for 2007 - 2008                                                                 December 3, 2007

      (3) Interest rates in 2008 are expected to                                   increased by 95.7 percent. Mining, ceramics and
          stabilize at current levels, at least                                    basic metal production increased by 1,431.0
          throughout the first half of 2008. At present,                           percent. Agriculture and agricultural products
          the policy rate is at 3.25 percent while an                              increased by 124.7 percent and light industry
          average Minimum Loan Rate (MLR) of 5 large                               rose by 55.3 percent. Approximately 72 percent
          commercial banks is at 6.99 percent, declined                            of overall promoted investment are large
          from 7.63 and 7.13 percent at the end of Q1                              projects, of which planned investment exceeds 1
          and Q2 respectively. The 12 months deposit                               billion baht each. These projects included eco-
          rate gradually decreased from 2.38 percent at                            car production, large-scaled passenger car
          the end of Q2 to 2.32 percent in October, while                          production      for     export-oriented,   ethanol
          the 3 months deposit rate has declined to                                production,     petrochemical      and   chemical
          2.125 percent. In October, an acceleration in                            products,     electricity  generation,   shipping
          inflation rate resulted in slightly negative real                        services for seagoing ship, hard disk drive,
          saving rate. Together with the improvement in                            integrated circuits and hotel entrepreneur.
          consumer confidence, negative saving rate will
          stimulate domestic spending.
      (4) Household real incomes are likely to
          increase from salary raise in public sector,
          increase in minimum wage rate, and rising farm
          income3 at a faster rate than inflation. These
          favorable factors; an improvement of consumer
          confidence, low interest rates and the increase
          in real incomes are expected to contribute
          substantially to recovery of household spending
          in 2008.
      (5) Employment continues to increase and rate
          of unemployment will remain low. This labor
          market development is also expected to boost
          household incomes. Employment in the first 3
          quarters increased by an average of 1.5 percent
          from the same period last year, while an
          average unemployment rate was low at 1.5                         4.2.2 Risk Factors
          percent.                                                         (1) Oil prices are likely to remain high and volatile
      (6) Some of investment projects being granted                           due to tight market condition. As a result, it will
          promotion by BOI in 2006 and 2007 are                               create an upward inflationary pressure can potentially
          expected to be start up their operations within                     dampen the world economic outlook than expected.
          2008. In the first 10 months of 2007, the number                    Average Dubai price is expected to be 68.70 US
          of BOI approval projects was 1,126 with total                       dollars per barrel in 2007, up by 11.6 percent from
          investment value of 583.1 billion baht,                             61.52 US dollars per barrel in 2006. In the first ten
          increasing by 213.7 percent from the same                           months of 2007, average Dubai oil price was 64.78
          period of 2006.                                                     US dollars per barrel, increasing by 4 percent from
          Considering BOI approvals, investment is likely                     the same period of last year. Currently, the average
          to increase in various categories. Promoted                         Dubai oil price stood at 87 US dollars per barrel and
          investment in chemical products, paper and                          expected to edge up in December as a result of
          plastic categories increased by 46.1 percent.                       cooler winter and continued tight market condition,
          Services and infrastructure rose by 359.5                           though there was an increase in production capacity
          percent. Electronics and electrical appliances                      in November 2007 and with Saudi Arabia’s
                                                                              willingness to increase production in order to ease the
3                                                                             market.
  According to cabinet approval on 5 June 2007, since 1 October 2007,
salaries for government and state enterprise officials have been raised       In 2008, the average of crude oil price is expected
by 4 percent with an associated budget allocation of 23,960 million baht
for the period of one year. The salaries uplift for state enterprise
                                                                              to continually surge during the first half of the
officials was also approved by the State Enterprise Workers’ Relations        year, and will level off in the second half in line
Committee (SERC) from August 20, 2007. In addition, a minimum wage            with lower world growth and possibility of
adjustment by 1-7 baht per day will be in effect on 1 January 2008.

Office of National Economic and Social Development Board                                                                           16
Economic Performance in Q3 and Outlook for 2007 - 2008                                                                          December 3, 2007

    increase production by OPEC. The average of                            (1.2) On the supply side there are capacity
    Dubai crude oil price is projected to be around 75-80                     constraints on both upstream exploration and
    US dollars per barrel 4. Underling factors for higher                     the downstream refinery industry. Currently, the
    price prospect are as follows:                                            industry has expanded their investment in order to
                                                                              raise its production capacity. However, new
    Global oil market will remain tight. World oil                            investment is estimated to begin its actual
    demand has continued to grow faster than oil supply                       operation in 2012. Therefore, spare capacity that
    of non-OPEC countries, putting more pressure on                           being ready to start operation within three months
    OPEC’s production and low inventories to bridge the                       is currently at only 2-3 million barrel per day6.
    gap while its spare capacity is limited. Moreover, an
    increase of 500,000 barrel per day in production                           In the forth quarter of 2007, non-OPEC production
    capacity since November 2007 is almost equal to the                        is expected to rise by 0.6 million barrel per day
    expansion in demand of the OPEC itself. Meanwhile,                         combined with an additional of 0.58 million barrel
    crude oil inventories will remain below seasonal                           per day by the OPEC plus Iraq and Angola.
    average level and is likely that demand for stock                          Consequently, total world oil supply in the last
    accumulation will continue to grow under tight market                      quarter of 2007 is estimated to be at 85.88 million
    situation. Geopolitical tension has also become a                          barrel, higher than 84.68 million barrel in the same
    critical risk factor that could affect supply side.                        period of last year. World oil production in 2008 is
    Moreover, expectation of US dollar depreciation will                       forecasted to be 87.35 million barrel, above 84.80
    induce oil-exporting countries to maintain oil prices at                   million barrel per day in 2007 by 2.55 million
    high levels, as most of them such as Saudi-Arabia                          barrel. In this respect, world oil production in the
    have pegged their currencies with US dollars thus the                      second half of 2008 is projected to be higher than
    lower value of US dollars result in their lower income                     in the first half according to seasonal factor. Total
    In local currency. Under the tight market condition, it                    OPEC supply including Iraq and Angola is
    is possible for high speculation that in part has put                      expected to be around 36.52 million barrel7,
    pressure on prices.                                                        increase 1.63 million barrel while non-OPEC
                                                                               supply will be around 50.82 million barrel, up 0.91
    (1.1) World oil demand is projected to expand in                           million barrel8.
       line with favorable prospect of the world
       economy, albeit some slowdowns from 2007.                           (1.3) OECD crude oil stocks are expected to
       Oil demand in China, India, US5, Russia and                            remain below the normal trend. The crude oil
       Middle Eastern countries will continue to be the                       stocks at the end of 2007 are expected to be at
       main drivers of global oil demand. The                                 2,550 million barrel which is lower than 2,678
       International Energy Agency (IEA) recently                             million barrel at the end of 2006 and also less than
       forecasted that the world oil demand in the fourth                     2,638 million barrel at the end of the third quarter
       quarter of 2007 would exceed the demand in the                         of 2007. In 2008, crude oil stocks will continue to
       same period of last year by 1.8 million barrel per                     decline during the first quarter, before picking up
       day. In 2008, it is expected that world oil demand                     during the second and third quarter. The last
       will be at 87.26 million barrel per day, slightly up
       from 2007 by 1.5 million barrel per day, as
       compared with an increase of 2.6 million barrel per             6
                                                                         Excess capacity since 1980 has led to lack of investment in new
       day in 2007. However, a harsher global slowdown                 refinery plants and drilling in the past 27 years, up until 2007 when new
       than expected due to ongoing difficulties in the US             investment begin to expand capacity which is expected to begin its
       mortgage market and the impacts of high oil price               actual operation by 2010.
       in 2007 could discourage demand growth and                        Consist of 31.69 million barrel per day of crude oil and 4.83 million
                                                                       barrel of other liquids. OPEC oil supply is expected to stay at 30.35
       reduce pressure on price during the second half of
                                                                       million barrel per day in 2007, slightly lower than 30.80 million barrel in
       2008.                                                           2006 while it is estimated to increase to 31.69 million barrel in 2008
                                                                         Share of OPEC oil demand continually accelerate from 8 percent in
                                                                       2002 to 9.3 percent in 2007while OPEC oil supply has expanded only
                                                                       300,000 barrel per day which is lower than its demand of 430,000
                                                                       barrel per day. At the end of 2007, it is expected that the total supply of
                                                                       OPEC 12 which includes Iraq and Angola will remain at 33.99 million
                                                                       barrel per day, up from 32.63 million barrel in 2006. Although, it is
  WTI at 71.36 US dollar per barrel compared with 66.02 US dollar in   already included 2 million barrel per day from Iraq and 1.47 million
2006. In 2008, EIA forecasted that WTI will be at 80 US dollar per     barrel from Angola, however, expansion of oil production is still
barrel while average Brent is expected to be at 84 US dollar, higher   confronting several risk and limitations, for example, political unrest in
than 72 and 66.2 US dollar in 2007 and 2006 respectively.              Nigeria, lack of investment in exploration and refinery sectors in Iran
  Demand for petroleum products is expected to expand by 0.5 percent   and Venezuela. Anyway, production capacity in Saudi Arabia is
in 2007 and 1 percent in 2008                                          expected increase by 500,000 barrel by the end of 2007.

Office of National Economic and Social Development Board                                                                                      17
Economic Performance in Q3 and Outlook for 2007 - 2008                                                     December 3, 2007

        quarter, will see 2,556 million barrel in stock,
        seasonally picking up from the third quarter.
                                                                  US real estate is on the path of market correction
    (1.4) Risks from geopolitical conflicts between the
       US and Iran, and also the political unrest in                              to sub-prime crisis
       Nigeria, Iraq and Venezuela could put further
       upward pressure on oil prices.                              Existing home sales continue to decline, in
                                                             particular in condominium market, due to tightening
    (1.5) A continued weakening US dollar will               financing conditions. This situation depresses home
       encourage oil producing countries to maintain         prices and discourages buyers as prices are expected to
       the oil prices at high levels in order to maintain    keep falling. Potential buyers demand for lower prices
       income from oil export in local currency. Moreover,   and hence inventory increases. Rising imbalance
       it builds up incentive for investors to invest and    between demand and supply implies continual economic
       speculate more in the future market which will        corrections to sub-prime crisis in 2008
       additionally put upward pressure on oil prices.
(2) There are risks associated with the world                                          Home sales
    economic outlook and could render the world
    economy weaker than expected. They include:
    (2.1) High and volatile oil prices
    (2.2) The US economic slowdown could be more
         severe than expected if impacts of the sub-prime
         mortgage problem prolong in 2008 and generate
         significant spillover effects throughout the US
         financial market as well as the European market.
         Such development, if prevail, would cause
         volatility of financial market and further dampen
         US dollar value.
    (2.3) Risks from geopolitics, particularly over the US
         and Iran conflict which would worsen oil price
                                                                                   Months Supply
         situation and also cause psychological effects.

                                                             Source: Lehman Brothers

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Economic Performance in Q3 and Outlook for 2007 - 2008                                                      December 3, 2007

4.3 Key Assumptions for 2008 Projection                                  A recovery in domestic spending and
                                                                        investment will counter the export slowdown
    4.3.1 The global economy is expected to grow by                     and the increase in imports in response to
          4.5 percent, softening from 4.8 percent in                    investment pickup. Rising oil prices will pass on
          2007 with major developed countries                           the effect to inflation which is expected to be
          leading the way. It is likely that the global                 around 3.0-3.5 percent. Unemployment is
          economic outlook will be confronted by major                  expected to be kept low at 1.5-2.0 percent.
          risks including spillover effects of the sub-prime            Current account surplus is expected to be
          problem protracting in 2008, key currencies                   around 8,000-10,000 millions US dollar.
          adjustment, implementation of the government
          policies for cooling down the emerging                       In 2008, it is likely to be the case that the Thai
          economies and inflationary pressure from the                  economy will grow at a higher rate than that
          oil price upsurge.                                            of 2007. This is attributable to a pick up in
                                                                        private     consumption       and    investment,
    4.3.2 Dubai crude oil price is projected to be in the               increase      in     government      expenditure
           range of 75-80 US dollar per barrel, a                       according to higher budget deficit as well as
           continued high level due to tightening oil                   progress of SOE investment in mass transit
           market. However, it is likely that oil price will be         railway system, all of which would likely to
           leveled off in the second half following                     offset export slowdown to some degrees. In
           slowdown in global economy and stabilized                    addition, those investment projects received the
           level of US dollar as well as raising OPEC                   BOI promotion in 2007 which are expected to be
           production.                                                  invested in 2008 are more broadly diversifying
                                                                        into SMEs such as those in food industry,
                                                                        ethanol and plastic products.

                                                                  4.5 Projection conditions for high and low
                                                                    4.5.1 The high case scenario of 5.0 percent. The
                                                                          economic growth in 2008 is likely to grow by
                                                                          5.0 percent or higher under following
                                                                          conditions (i) Global economy expands by 4.0
                                                                          percent or higher. Meanwhile, Thai export
                                                                          could adapt itself to be more competitive,
                                                                          under higher restrictions, with the expected
                                                                          growth of 10.0-12.0 percent and tourism
                                                                          receipts will expand around 6.0-7.0 percent (ii)
4.4 Economic projection for 2008: 4.0-5.0                                 The disbursement of public spending is not
    percent GDP growth with 3.0-3.5 percent                               less than 85 percent of overall government
                                                                          and SOE investment budget. Priority should
    inflation rate.                                                       be made on speeding up budget disbursement
          In 2008, domestic demand, especially public                     of projects implemented for supporting low-
          and private investment are expected to                          income people on their occupational
          expand stronger, in particular, in the second                   development as well as infrastructure
          half of the year. Key investment projects                       development, particularly on health care and
          includes, for example investment in mass transit                social issues (iii) Improved consumer and
          railway system, automobile industry particularly                business confidences after new government is
          those received special tax incentives for energy-               set up which would stimulate household
          saving car (eco car and E20 car), electronics                   spending to recover back to normal trend and
          industry, ethanol production and IPP electricity                help business sector to expand their
          generation projects. In the first 10 months of                  investment, especially those approval projects
          2007, BOI approval projects totaled 538.1 billion               from BOI (iv) Oil prices starts to climb down
          baht, increased by 213.7 percent.                               during the second half of the year due to an
                                                                          increase in OPEC production quota, and

Office of National Economic and Social Development Board                                                                19
Economic Performance in Q3 and Outlook for 2007 - 2008                                                                                                                December 3, 2007

              average Dubai oil prices for the whole year not                                                  growth has clearly taken into account the slow
              exceed 80 US dollar per barrel.                                                                  down in Japan EU and China while the US
                                                                                                               economy stabilizes after significant slow down
     4.5.2 The low case scenario of 4.0 percent or
                                                                                                               in 2007 (ii) oil price, in the assumption is high,
           below. The economy in 2008 will expand by
                                                                                                               compared to other sources of forecast. In
           4.0 percent under the case of (i) Global
                                                                                                               addition, as the global economy is slowing
           economy slows down more than expected and
                                                                                                               down and the OPEC has a tendency to
           shows lower growth than 4.0 percent. This
                                                                                                               increase production, the possibility that oil
           could be a result of rapid increase in oil prices
                                                                                                               price will be higher than the assumption is low
           and protracted real estate market correction in
                                                                                                               (iii) investment is likely to pick up faster than
           the US.      (ii) The disbursement rate of
                                                                                                               expected, especially in light of the approval
           government and SOEs is below 80 percent (iii)
                                                                                                               projects by the BOI which had significantly
           Average Dubai oil prices is above 80 US dollar
           per barrel as a result of higher uncertainties
           from natural disaster, international political
           conflicts and OECD inventories levels are less
           than seasonal trend under supply constraints.
     4.5.3 The possibility for the high growth scenario
           in 2008 is higher than the low growth scenario
           since (i) the assumption of world economic

                                                         P r o b a b i l i t y F o r e c a s t fo r 2 0 0 8 : A s y m m e t r i c D i s t r i b u t i o n
                                                                                                                                                                      6 .5


                                                                                                                                                                      5 .5


                                                                                                                                                                      4 .5


                                                                                                                                                                      3 .5
                                       Q1       Q2          Q3          Q4         Q1     Q2        Q3        Q4                    Q1          Q2          Q3   Q4
                                                                                   % G D P Y e a r 2 0 0 6 -2 0 0 8

Office of National Economic and Social Development Board                                                                                                                          20
Economic Performance in Q3 and Outlook for 2007 - 2008                                                         December 3, 2007

4.6 Growth components in 2008
4.6.1 Demand side: growth contribution from each                         MOC, such as LPG gas, detergent, fertilizer, and
     component is expected to be more balanced, with                     tires.
     domestic demand plays a more significant role in
                                                                 4.6.2 Production side: Agriculture and manufacturing
     supporting growth than in 2007. Meanwhile, net
                                                                       production tend to expand at similar rate as 2007.
     export of goods and services is expected to reduce
                                                                       While, tourism and real estate sectors are
     their supporting roles. Components for demand
                                                                       expected to perform better than in 2007. For
     growth can be classified as follows:
                                                                       financial sector, higher growth in credit expansion
       (1) Total consumption expenditure is projected to               is expected. Nevertheless, many financial
           increase by 4.5 percent, moderately greater than            institutions are now entering the transition period,
           3.1 percent in 2007. In addition, public and                as they have to adapt to the new rules and
           private consumption are expected to rise by 10              regulations, such as the BASEL II and new deposit
           and 3.5 percent respectively.                               insurance act. Production side outlook is as
       (2) Investment is expected to grow by 5.8 percent,              (1) Agriculture sector is expected to improve
           accelerate from 1.3 percent in 2007, with                       especially in key products, for example:
           contributions of 5.0 and 8.0 percent growth in
           private and public investment respectively.                 (1.1) Rice: Production of rice tends to improve due
                                                                             to adequate supply of water and favorable
       (3) Projection of export value in term of US dollar is                price. High price is expected as a result of
           10 percent increase, slow down from 16.5                          slowdown in world supply, as Vietnam has
           percent in 2007 while export quantity is expected                 revised down its export target in order to
           to expand by 4.0 percent. On the other side,                      maintain its homeland food security while
           import is likely to speed up, following the                       other major suppliers such as India and
           expansion of investment and domestic                              Bangladesh were affected by natural disaster.
           consumption. The value of import is forecasted                    Moreover, government already approved the
           to rise by 12.5 percent compare to 8.5 percent in                 “Thai rice strategy” in order to improve quality
           2007.                                                             and varieties of “Thai rice product”. This
                                                                             strategy aims to strengthen consumer
       (4) A surplus of 7.3 billion US dollar in trade balance               confidence which will lead to better farmer
           associated with a surplus in net service incomes                  income.
           and transfers would result in current account
           surplus of 9.3 billion US dollar or 3.6 percent of          (1.2) Cassava: Output of cassava is likely to
           GDP.                                                              increase as result of greater domestic
                                                                             demand from alternative energy use and
       (5) Inflation tends to increase to an average of 3.0 –                animal food production as well as global
           3.5 percent as a result of higher prices of oil and               demand. Hence, cassava price is expected to
           raw materials while domestic demand in goods                      remain at high level.
           and services is also expected to rise. Inflation in
                                                                       (1.3) Rubber: With greater global demand and
           October increased to 2.5 and compared to 2.1
                                                                             price speculation in the commodities forward
           percent in the first 9 months of 2007 while
                                                                             market, both output and price of rubber are
           producer price index also picked up.
                                                                             expected to increase. In addition, many
           Consequently, inflationary pressure on price of
                                                                             industries such as tire and rubber glove, have
           goods and services will be strengthened. In
                                                                             increased their natural rubber usages as
           addition, Ministry of Commerce (MOC) had
                                                                             syntactic rubber price is increasing with oil
           already approved upward price adjustment of
           various kinds of product, including dairy product,
           instant coffee, vegetable cooking oil, fish source,         (1.4) Fishery In 2008, the growth in fishery
           can fish, passenger cars, and motorcycle9while                    production will mainly focus on king prawn
           many of others still waiting to be approved by                    production which accounts for approximately
                                                                             20 percent of overall shrimp production. Key
                                                                             supporting factors in 2008 are trading
    Effective from October onward

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Economic Performance in Q3 and Outlook for 2007 - 2008                                                      December 3, 2007

               facilities such as forward contracts, cold                skill is strongly required because various
               storage plants for perishable products, and               industries still face with lack of skilled labors.
               agricultural option market. However, risk
                                                                    (3) The construction sector. In 2008, the
               factors confronting shrimp export are export
                                                                        construction sector will be on a positive trend,
               and import measures regarding food
                                                                        particularly    residential    construction     in
               standard, for example, Australia has recently
                                                                        Bangkok and vicinities. This is because of
               imposed an import risk analysis (IRA) which
                                                                        changing consumer behavior encouraged by
               requires certifications that Thai shrimp
                                                                        surge in oil prices. Demand for construction
               products are free from marine diseases.
                                                                        along the route of mass transit system is
        (2)     The industrial sector. Export-oriented                  likely to substantially increase. Office building
               production tends to slow down due to a                   and manufacturing constructions are also on
               downward trend of key trading partners’                  an upward trend, stimulated by economic
               economies. Nonetheless, production for                   recovery.
               domestic consumption will benefit from an
               upward trend of domestic consumption and             (4) The tourism sector in 2008. The target of
               investment. Particularly, main industries -               foreign tourists is set at 15.7 million people,
               such      as      electronics,    automobiles,            increased from 14.8 million people in 2007.
               petrochemicals, chemical products and paper               Revenue is expected to be around 600,000
               - are on a positive trend. In 2008, challenging           million baht, an increase from 547,500 million
               factors will be the fact that small                       baht in 2007. In order to achieve the target, it
               entrepreneurs need to improve their                       is necessary to emphasize more on the high-
               standards and quality of products due to                  end tourist market or revenue-based rather
               continuously changing in structure of global              than quantity of tourists. E-Marketing system
               production with strong competition from low               as well as traditional marketing style will be
               cost producers (e.g., China, India and                    adopted in order to penetrate the new high
               Vietnam) while oil price is also likely to                potential market while maintaining the original
               increase. Therefore, development of labors’

5. Economic Policy Management for 2008
The economic management in 2008 under the new government administration should focus on maintaining economic
stability in the environment of rising oil prices and global economic slowdown as well as building strong foundation for
sustainable economic growth in the long run, with key principles including, enhancing productivity, value creation in
order to be more competitive, strengthening domestic economy and developing sound economic foundation for local
communities as well as supporting people’s well being. Management guidelines are as follows:

5.1 Building up investors’ confidence by effectively eliminating the obstacles to private investment and accelerating
     public investment, in order to stimulate an economic growth and to improve productivity for the economy in the
     long run, which are:

      5.1.1 Speeding up public investment in infrastructures which will open up opportunities for investment in related
           economic activities such as construction and real estate sectors. The government should start the bidding
           process for 5 lines of mass transit rail within 2008.

      5.1.2 Speeding up public administration process to facilitate private investment projects which have planned to
           start operation next year. This includes pending Environmental Impact Assessment (EIA) to be approved by
           the National Environment Committee, and encouraging BOI approval projects to start their operations as
           planned. Moreover, Southern Region Development Strategy should be clearly established as an alternative
           location for industrial estate development.

Office of National Economic and Social Development Board                                                                22
Economic Performance in Q3 and Outlook for 2007 - 2008                                                   December 3, 2007

5.2 Accelerating budget disbursement in FY 2008 to achieve target of 94 percent disbursement rate of
    government budget and 90 percent of SOEs investment budget. Mechanism under the committee of government
    budget execution should be established to clearly and systematically monitor and report the progress of budget
    disbursement, especially the key strategic policies. Such projects are as follows:
      • The National Productivity Enhancement Plan and the Intellectual Infrastructure Master plan (overall budget of
        3,272.47 million baht)
      • The Well-Being Strategy (overall budget of 15,000 million baht)
      • The productivity enhancement in energy use and alternative energy development.

      • Priority projects of the National Logistics Development Master Plan.
      • Operational Plan for Environmental Governance in Mabtaput area (overall budget of 613.7 million baht)
      • Integrated Water Resources Management Plan.

5.3 Promoting exports in the new markets, in particular those countries in the Middle East, Africa and Eastern
    Europe. In addition, it is required to strictly improve standard of products especially food products. In 2008,
    regulations for product standard in the world market will become more stringent such as the US food safety law,
    European Union’s regulation on the Registration, Evaluation, Authorization, and Restriction of Chemicals
    (REACH) which has been effective since June 1, 2007 and Australia’s policy on Import Risk Analysis (IRA) for
    shrimps and products.

5.4 Promoting tourism sector to recover from a slowdown in 2007, particularly through the security and safety
    measures for tourists, the planned development of tourist sites, marketing and personnel as well as introducing
    activities aimed at encouraging domestic traveling, a Thai-style environmentally friendly tourism scheme, a travel-
    integrated lifestyle tourism activities and introduction of proactive tourism measures for anti-global warming.
5.5 Driving measures on efficiency improvement in energy consumption and promoting alternative sources of
    energy continuously as well as setting and actively implementing comprehensive energy plan at the national level
    such as plan for E10/95, E10/91, E20/95, B2 and B5.
5.6 Establishing mechanisms to support business adjustment for various sectors and SMEs which have been
    affected by changing global supply chain such as textile and garment industry, leather industry and electrical

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Economic Performance in Q3 and Outlook for 2007 - 2008                                                                       December 3, 2007

                                                         Economic Projection of 2007 - 2008
                                                                                                       2007_f                    2008_f
                                                                   2005        2006_p         3 Sep. 07       3 Dec. 07        3 Dec. 07
GDP (at current prices: Bil.Bht)                                7,095.6       7,830.3          8,417.6         8,386.3          8,433.2
     GDP per capita (Bht per year)                             109,440.9     120,763.4        128,152.6       127,064.0         127,800
GDP (at current prices: Bil.USD)                                 176.2         206.6            240.5           243.1            255.6
     GDP per capita (USD per year)                               2,715        3,186.4          3,672.6         3,683.0          3,872.7
GDP Growth (at constant prices, %)                                 4.5          5.1            4.0-4.5           4.5            4.0-5.0
Investment (at constant prices, %)                               10.6           3.8              1.5             1.3              5.8
    Private (at constant prices, %)                              10.6           3.7              1.0             0.3              5.0
    Public (at constant prices, %)                               10.8           3.9              3.0             4.5              8.0
Consumption (at constant prices, %)                               5.3           3.0              2.6             3.1              4.5
    Private (at constant prices, %)                                4.5           3.2             1.7             1.9              3.5
    Public (at constant prices, %)                                10.8           2.3             7.8             10.2             10.0
Export volume of goods&services (,%)                              3.9           8.5              7.3             6.7              4.1
    Export value of goods (Bil.USD)                              109.2         127.9            144.5           148.4            163.9
        Growth rate (%)                                          15.0           17.1             13.0            16.0             10.0
        Growth rate (Volume, %)                                    4.3          9.0              8.5             7.4              4.0
Import volume of goods&services (,%)                              8.7           2.6              3.4             2.8              4.4
    Import value of goods (Bil.USD)                              117.7         126.0            135.4           138.6            155.9
        Growth rate (%)                                           25.9           7.0             7.5             10.0             12.5
        Growth rate (Volume, %)                                    8.9          -0.8             3.0             2.0              4.0
Trade balance (Bil.USD)                                           -8.5          1.9              9.1             9.8              7.3
Current account balance (Bil.USD) 2/                              -7.9           3.2             9.8             12.0              9.3
Current account to GDP (%)                                        -4.4          1.5              4.1             4.9              3.6
Inflation (%)
    CPI                                                           4.5            4.7           2.0-2.5            2.3           3.0-3.5
    GDP Deflator                                                  4.5            5.0             3.3              2.6           3.0-3.5
Unemployment rate (%)                                             1.8            1.5           1.5-2.0            1.5             1.5
Source: Office of National Economic and Social Development Board. December 3, 2007
Note: Reinvested earnings has been recorded as part of FDI in Financial account, and its contra entry recorded as income on equity in current

Office of National Economic and Social Development Board                                                                                  24
Economic Performance in Q3 and Outlook for 2007 - 2008                                                                               December 3, 2007

                                               Tightened World Oil Market in 2007-2008

 World oil demand continues to expand. Rapid increase were apparent in new emerging countries
 such as China, India, US, Russia and the Middle East.

                                                                                         Annual Consumption (Million barrels)
                                                                                        China    U.S.      Other       World
                                                                              1999      4.364   19.519    51.781      75.665
                                                                              2000      4.797   19.701    52.164      76.661
                                                                              2001      4.918   19.649    52.836      77.402
                                                                              2002      5.162   19.762    53.116      78.041
                                                                              2003      5.580   20.034    54.003      79.617
                                                                              2004      6.438   20.731    55.165      82.334
                                                                              2005      6.721   20.802    56.132      83.655
                                                                              2006      7.273   20.687    56.700      84.661
                                                                              2007      7.679   20.791    57.332      85.801
                                                                              2008      8.148   20.995    58.118      87.260

 Source: Energy Information Administration (EIA)

 ....However, oil supply in 2007 grows at a lower pace than demand since OPEC, UK and Norway
 reduced their productions.

                                                                                                    Annual Production (Million barrels)
                                                                    Region / Country                 2005      2006     2007       2008
                                                                   World Total                     84.631      84.603   84.798   87.345
                                                                    OPEC Countries                 35.560      35.295   34.887   36.524

                                                                    North America                  15.198      15.326   15.409   15.589
                                                                      Canada                        3.092       3.288    3.416    3.598
                                                                     Mexico                         3.784       3.707    3.530    3.316
                                                                      United States                 8.322       8.331    8.463    8.675
                                                                    Russia and Caspian Sea         11.489      11.890   12.369   12.788
                                                                      Russia                        9.513       9.677    9.887   10.064
                                                                      Kazakhstan                    1.338       1.388    1.445    1.535
                                                                    Latin America                   4.410       4.559    4.635    4.979
                                                                      Brazil                        2.038       2.166    2.321    2.712
                                                                     Other Latin America            0.499       0.510    0.475    0.476
                                                                    North Sea                       5.177       4.780    4.574    4.330
 Source: Energy Information Administration (EIA)                      Norway                        2.978       2.786    2.607    2.539
                                                                      United Kingdom                1.771       1.602    1.594    1.428
                                                                    Other Non-OPEC                 12.798      12.755   12.923   13.135

 Source: Energy Information Administration (EIA)
                                                                   Source: Energy Information Administration (EIA)

Office of National Economic and Social Development Board                                                                                         25
Economic Performance in Q3 and Outlook for 2007 - 2008                                                                                                                        December 3, 2007

 ...Total crude oil stocks in both the US and OECD declined to stay at below average level while OPEC
          spare capacity also remain lower than average of 2.84 million barrel per day since 2003

                                                                                OPEC Surplus Crude Oil Production Capacity
                                                                                                          Surplus Capacity
                                                                                        1996                    2.36
                                                                                        1997                    2.12
                                                                                        1998                    3.21
                                                                                        1999                    5.02
                                                                                        2000                    3.11
                                                                                        2001                    4.10
                                                                                        2002                    5.64
                                                                                        2003                    1.92
                                                                                        2004                    1.27
                                                                                        2005                    1.02
                                                                                        2006                    1.47
                                                                                        2007                    2.22
                                                                                        2008                    2.37
                                                                                  Avg. 1996 - 2008              2.84

 Source: Energy Information Administration (EIA)

                                                                                                      U.S. Crude Oil Stocks
                                                                            ม.ค. 2003      ม.ค. 2004       ม.ค. 2005      ม.ค. 2006       ม.ค. 2007      ม.ค. 2008
                                                                  NOTE: Colored band represents "normal" range published in EIA Weekly Petroleum Status Report, Appendix A.

                                                           Short-Term Energy Outlook, November 2007

 .....Together with other downside risk factors such as natural disaster, political unrest in oil
 producing countries, geopolitical conflicts, speculation in the markets and continual weakening US

                          Oil prices and NEER                                    Factors affecting oil prices
                                                            • A continued weakening US dollar will
                                                              encourage oil producing countries to
                                                              maintain the oil prices at a high level
                                                            • Geopolitical conflicts within oil
                                                              producers such as Iraq, Venezuela and
                                                              Nigeria will not allow to produce at full
                                                            • Volatile climates such as Hurricane
                                                              which affected oil production in Mexico
                                                            • Speculation of trader and hedge fund in the
                                                              oil markets.

Office of National Economic and Social Development Board                                                                                                                                  26
Economic Performance in Q3 and Outlook for 2007 - 2008                                                                                                                                     December 3, 2007

 Appreciation of a currency could offset the impact of higher oil prices

International Petroleum Supply, Consumption, and Inventories
                                                2006                                       2007                                       2008
                                       1st      2nd         3rd       4th        1st       2nd         3rd       4th        1st       2nd         3rd       4th       2006       2007       2008
Supply (million barrels per day) (a)
Total World Production                 84.31      84.21      85.21     84.68      84.18       84.5      84.62     85.88      86.36      86.85      87.79     88.37       84.6       84.8        87.35
 OPEC                                  35.36      35.19      35.66     34.97      34.51      34.58       34.9     35.55      36.15      36.26      36.74     36.94      35.29      34.89        36.52
 Non-OPECD (f)                         48.94      49.02      49.56     49.71      49.68      49.91      49.72     50.33      50.21      50.59      51.05     51.43      49.31      49.91        50.82

 OECD (b)                              21.76      21.38      21.54     21.66      21.76      21.52     21.11      21.64      21.64      21.44      21.16     21.45      21.59      21.51        21.42
  U.S. (50 States)                      8.14       8.29       8.45      8.44       8.45       8.53      8.41       8.46       8.71       8.66        8.6      8.73       8.33       8.46         8.68
  Canada                                3.29       3.16       3.31      3.39       3.42       3.33      3.38       3.53       3.56        3.6       3.62      3.62       3.29       3.42          3.6
  Mexico                                 3.8       3.79       3.71      3.52       3.59       3.61      3.46       3.46       3.33       3.36        3.3      3.27       3.71       3.53         3.32
 Non-OECD                              62.54      62.83      63.67     63.01      62.42      62.98      63.5      64.24      64.72      65.41      66.63     66.92      63.02      63.29        65.92
  OPEC-11                              33.92      33.84      34.18     33.51      32.87      32.88    332.14      33.57      33.97      34.02       34.5      34.6      33.86      33.12        34.27
  OPEC-12 (d)                          35.36      35.19      35.66     34.97      34.51      34.58      34.9      35.55      36.15      36.26      36.74     36.94      35.29      34.89        36.52
  Former Soviet Union (e)              11.81      12.07      12.26     12.48      12.61       12.6     12.53      12.77      12.79      12.91      13.15     13.32      12.16      12.63        13.04
  China                                 3.85       3.87       3.85      3.86       3.86       3.96      3.85       3.86       3.86       3.88       3.88      3.89       3.86       3.88         3.88
  Other Non-OECD                       11.52       11.7       11.9     11.71      11.43      11.84     12.23      12.06      11.92      12.36      12.86     12.77      11.71      11.89        12.48

Consumption (million barrels per day) (g)
Total World Consumption             85.33         83.42      84.26     85.63      85.63      84.52      85.59     87.45      87.69      86.01      86.85     88.48      84.66       85.8        87.26
 OECD (b)                           50.34         48.05       48.9      49.7      49.54      48.07         49     50.32      50.27      48.28      48.92     50.01      49.24      49.23        49.37
   U.S.                             20.54         20.55      20.91     20.75      20.77      20.65      20.82     20.92      20.96      20.85      21.12     21.05      20.69      20.79           21
   Canada                             2.26          2.2       2.26      2.26       2.34        2.3       2.31      2.28       2.23       2.15       2.22      2.26       2.24       2.31         2.21
   Europe                           15.89         15.15      15.57     15.64      15.25      14.93      15.48     15.72      15.42         15      15.41     15.65      15.56      15.35        15.37
   Japan                              5.89         4.72       4.75      5.29       5.39       4.61 4,89            5.62       5.95       4.84       4.81      5.32       5.16       5.13         5.23
 Non-OECD                           34.99         35.37      35.36     35.94      36.09      36.44      36.59     37.14      37.42      37.73      37.93     38.47      35.42      36.57        37.89
   Former Soviet Union                4.41         4.25       4.23      4.43       4.54        4.4        4.4       4.6       4.69       4.59        4.6      4.81       4.33       4.48         4.67
   Europe                             0.83         0.77       0.73      0.78       0.84       0.78       0.74      0.79       0.86        0.8       0.75      0.81       0.78       0.79          0.8
   China                              7.02          7.3       7.24      7.53       7.43       7.62       7.69      7.97       7.93       8.05       8.17      8.44       7.27       7.68         8.15
   Other Asia                         8.53         8.62       8.45      8.73       8.62       8.71       8.53      8.82       8.74       8.81        8.6       8.9       8.58       8.67         8.76
   Other Non-OECD                     14.2        14.43      14.72     14.47      14.66      14.93      15.24     14.96       15.2      15.49      15.81     15.51      14.45      14.95         15.5

Inventory Net Withdrawals (million barrels perday)
Total Stock Draw                            1.02  -0.78      -0.95       0.96      1.44       0.02       0.97       1.57      1.33      -0.84      -0.94       0.11       0.06      1.00        -0.08
  U.S. (50 States)                          0.07  -0.41      -0.61       0.71      0.48      -0.57       0.09       0.38      0.13      -0.65      -0.03       0.36      -0.06      0.09        -0.04
  Other OECD (b)                           -0.08  -0.33      -0.55       0.14      0.38       -0.2       0.19       0.53      0.44      -0.26       -0.3       0.04       -0.2      0.22        -0.02
  Other Stock Draws and Balance             1.03  -0.04        0.2        0.1      0.59        0.8       0.69       0.67      0.76       0.07       -0.2      -0.29       0.32      0.69        -0.02
End of period Inventories (million barrels)
  U.S. Commercial Inventory             1,005.0 1,041.0    1,097.0    1,031.0     988.0    1,039.0    1,027.0      988.0     970.0    1,023.0    1,020.0      986.0   1,031.0      988.0      986.0
  OECD Commercial Inventory (b)         2,594.0 2,656.0    2,760.0    2,678.0   2,597.0    2,669.0    2,638.0    2,550.0   2,492.0    2,568.0    2,593.0    2,556.0   2,678.0    2,550.0    2,556.0

(a) Supply includes production of crude oil (including lease condensates), natural gas plant liquids, other liquids, and refinery processing gains, alcohol.
(b) OECD: Organization for Economic Cooperation and Development: Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland,
France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal,
Slovakia, South Korea, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States.
(c) Includes offshore supply from Denmark, Germany, the Netherlands, Norway, and the United Kingdom
(d) OPEC-12: Organization of Petroleum Exporting Countries: Algeria, Angola, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, Venezuela. OPEC-11
does not include Angola.
(e) Former Soviet Union: Armenia, Azerbaijan, Belarus, Estonia, Georgia, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan.
(f) Non-OPEC Supply does not include petroleum production from Angola and does not include OPEC non-Crude liquids production.
(g) Consumption of petroleum by the OECD countries is synonymous with "petroleum product supplied," defined in the glossary of the EIA Petroleum Supply Monthly , DOE/EIA-0109.
Consumption of petroleum by the non-OECD countries is "apparent consumption," which includes internal consumption, refinery fuel and loss, and bunkering.
Source: Energy Information Administration/Short-Term Energy Outlook - November 2007

Office of National Economic and Social Development Board                                                                                                                                                27

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