Economic indicators for December, released by the Bank of Thailand last Friday, look quite positive with continuing growth of production, private consumption, private investment, export and commercial bank credit. Total Thai exports expanded by a double-digit rate for the fourth consecutive month. Also, there were even indications that credit demand is starting to pick up for the first time since the Asian economic crisis in 1997.

It is also important to note that inflation remains quite benign even with higher oil prices. In 2002, core inflation increased by only 0.4%. The BOT expects 2003 core inflation to remain low at 0.5-1.5%, allowing the central bank to maintain an easy monetary policy with low interest rates to stimulate economic growth.

Thailand’s international reserves remained high at $38.9bn as of December. The BOT plans to repay the remaining IMF debt of $4.8bn within the first half of this year.

The BOT raised its 2002 GDP growth projection to 5% from the previous forecast of 4-4.5%. Unless there was a previous quarter adjustment, this means the Thai economy grew around 5.3% in 4Q02. The BOT also raised its 2003 GDP growth to 3.5-4.5% from previous forecast of 3-4%. The BOT expects that the Thai economy in 2003 will continue to be driven by domestic demand, particularly private investment and consumption. The BOT, however, seems to be adopting a conservative forecast on the external sector, given the uncertain impact of a second gulf war on an already weak global economy.

• Manufacturing Production: In December, the manufacturing production index grew by 11.9%, the highest growth rate since December 1999. Increases in production raised overall capacity utilisation to 62.7%. For the year 2002, manufacturing production index grew by 8.2%, led by the iron & steel product sector (+24%), cement (+13.5%), vehicles (+19.7%) and electronics & electrical appliances (+24.1%).

• Consumption Expenditure: The private consumption index expanded by 6.6% in December. This represents the strongest rate of growth since July 1995, largely due to exceptional growth rate in car and motorcycle sales. In December, passenger car sales rose by 16.3% and motorcycle sales by 56.9%. Meanwhile, imports of consumer goods increased at an alarming rate of 35.1%. For the year of 2002, private consumption index grew by 3.7%, aided by high liquidity and low interest rates, as well as improving consumer confidence and purchasing power.

• Investment Expenditure: The private investment index grew at a slower rate of 19.6% compared to previous months. However, the double-digit growth rate remains quite encouraging. This was due to growth in 42.4% increase in commercial car sales and a 9.7% increase in imports of capital goods. However, cement sales contracted by 11.9% as a result of very strong sales at the end of 2001 during a cement price war. Also, we believe the December private investment indicator is showing signs of a slowdown from November due to worries about the potential of a second gulf war as well as high oil prices. For the year of 2002, the private investment index grew by 23.4% compared with only 0.2% in 2001.

• External Position: In December, exports grew at a satisfactory rate of 10.3% to $5.5bn, even though the growth rate was down from the previous three months. This represents the fourth consecutive month of double-digit growth. Even though imports grew at a faster rate of 15.6% to $5.1bn, Thailand still recorded a trade surplus of $421mn. When combined with the service account, the current account registered a high surplus of $868mn and a balance of payments surplus of $278mn. Foreign reserves remained at a high $38.9bn despite a $501mn debt repayment to the IMF in the month.

• Monetary conditions: BOT numbers indicate that demand for credit is starting to pick up. In December, commercial bank credit expanded by 7.5%, which was primarily due to credit extended to public utilities, housing, and personal consumption sectors. Meanwhile, deposits grew by only 2.5%. Due to the excess liquidity in the financial system, overnight inter bank lending rates averaged only 1.76% in December.