Key developments and outlook...2007 Q1 2009 Q1 2011 Q1 2013 Q1 2015 Q1 2017 Q1 Quintile 1 Quintile 2 Quintile 3 Quintile 4 Quintile 5 Quintile 1 = Lowest-income households Quintile

• Thailand’s growth outlook gains further traction due to stronger growth in merchandise exports and tourism as well as a continued recovery in domestic demand that start to be more broad-based.

• Headline inflation increases at a slower pace than the previous assessment owing primary to the decline in fresh food prices.

• Risks to growth forecast become more balanced in the short run but still skews downward overall. Risks to inflation forecast are broadly balanced.

• Monetary policy remains accommodative to support the continuation of economic growth, while ensuring financial stability.

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Key developments and outlook

2016* 2017 2018

GDP growth 3.2 3.8 3.8

(3.5) (3.7)

Headline inflation 0.2 0.6 1.2

(0.8) (1.6)

Core inflation 0.7 0.6 0.9

(0.6) (0.9)

* Outturn, ( ) Monetary Policy Report, June 2017

• G3 economies continue to expand on the back of improved private consumption and stronger labor market.

• Asian economies’ growth improve from expansion in exports following global demand recovery and the technology cycle of electronics. Meanwhile, the Chinese economy slightly slows down from ongoing economic structural reforms.

• Risks that warrant monitoring: (1) US economic and foreign trade policies, (2) geopolitical risks, and (3) China’s financial stability.

• In the recent periods, most central banks retained their accommodative monetary policies.• The Fed would reduce the size of its balance sheet in October 2017 and is expected to raise the

federal funds rate once more throughout the remainder of 2017 and three times in 2018.

Monetary policy

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Index, 3mm sa (Jan 15 = 100)

Merchandise export value of Asia-6*

Trading partners’ growth outlook improves while risks remain more balanced

75

100

125

Jan2015

Jul2015

Jan2016

Jul2016

Jan2017

Jul2017

EU market (12%) Japanese Market (7%)

US market (13%) Chinese market (36%)

Asian market** (32%)

Note: *Asia-6 includes Hong Kong, Taiwan, Korea, Malaysia, Singapore, and Thailand**Asian market includes Hong Kong, Taiwan, Korea, Singapore, Philippines, Indonesia, and Thailand

Source: CEIC, calculated by Bank of Thailand

• Oil prices remained mostly similar to the previous assessment due to underlying fundamentals that were largely unchanged.Demand for oil continues to expand, while crude oil production in the U.S. is expected to decline.

• Risks to oil price projection are balanced o Upside risks include the possibility that

OPEC and non-OPEC would be able to comply with production cuts and geopolitical risks that could put pressures on prices to rise in some periods.

o Downside risks include higher-than-expected oil production from countries engaging production cuts, shale oil producers in the US, as well as Libya and Nigeria.

Oil prices recently stayed at same level as previous assessment but are expected to increase gradually in the future

2030405060708090

2015 2016 2017 2018 2019

Jun-17

Sep-17

± 1 S.D.

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Dubai oil price assumptionUSD/Barrel

USD/Barrel 2016* 2017 2018

As of Sep 17 41.4 50.9 52.8

As of Jun 17 50.9 52.8

* Outturn

• Factors supporting export growth:

1)Ongoing global economic expansion

2)Continued uptrend of Internet of Things

3)Rising export prices, especially oil-related commodities

• Going forward, export growth is expected to slow down in line with global trade that is projected to trend down in 2018, together with last year’s high base following prior acceleration in exports of certain products.

020406080

100120140

2013 2014 2015 2016 2017

Agricultural products (7.0%)Electrical appliances (5.8%)Automative parts (6.3%)Petroluem-related products (10.6%)Electronics excl. HDD (8.3%)

Aug 17

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Thailand’s merchandise export volumeIndex, 3mm sa (Jan 13 = 100)

Note: ( ) indicates share of total exports in 2016Source: Thai Customs Department, calculated by BOT

Merchandise export value projection

% YoY 2016* 2017 2018

As of Sep 17 0.1 8.0 3.2

As of Jun 17 5.0 1.7

* Outturn

Merchandise exports continue to expand across various goods and almost in every market

Factors supporting tourism:

(1) The opening of new direct flight routes from China to major tourist destinations in Thailand generate an increasing number of Chinese tourists for both group and independent tourists with high purchasing power.

(2) Regional economic recovery leads to a rising number of ASEAN tourists.

(3) The reduction and exemption of tourist visa fees brings about an increasing number of foreign tourists. Although such measures already expired in August 2017, the impact on the overall number of tourists is relatively limited.

(4) Improvements in the global economy leads to an increase in the number of tourists and a further rise in tourism spending per head.

0

50

100

150

200

250

300

2014 2015 2016 2017

Aug 17

Europe excl. Russia(16%)

China (27%)

Malaysia (11%)

Russia (3%)

Total

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Number of foreign tourists by nationality

Projected number of foreign tourists to Thailand

Millions 2016* 2017 2018

As of Sep 17 32.6 35.6 37.3

As of Jun 17 34.9 37.3

* Outturn

Note: ( ) indicates share of tourists in 2016Source: Department of Tourism

Exports of services continue to expand further on the back of tourism

Index, 3mm sa (Jan 14 = 100)

• Private consumption continues to gradually expand due to improvements in farm income following higher agricultural output and higher employment in export-oriented and tourism sectors, which helps shore up confidence of household. In addition, private consumption also benefits from several government policies such as the social welfare card and the 9101 project.

• In the period ahead, purchasing power would remain modest especially a low-income group whose income has yet to recover because employment and income is still concentrated in certain sectors. This is partly due to an increasing adoption of automation in place of human labor as well as elevated household debt that still weighs on private consumption.

Private consumption is projected to gradually recover

707580859095

100105110

2014 2015 2016 2017

Farm income Average non-farm income

Aug 17

7 / 23

Index, 3mm sa (Jan 14 = 100)

Farm income and nonfarm income

Sources: Office of Agricultural Economics, National Statistical Office, and Ministry of Commerce; calculated by BOT

Overall growth benefits employment in middle-income group while employment in low-income group is yet to improve

Note: ( ) denotes the monthly income of each worker group

Sources: National Statistical Office, Office of Industrial Economics, Revenue Department, Bank of Thailand, calculated by the Bank of Thailand

• Economic growth is not yet sufficiently strong as seen in labor market developments• Employment increases in businesses that benefit from exports and tourism in a more broad-based manner across various firm sizes• Nonagricultural employment in a middle-income group increases, whereas employment in a low-income group might take some time

to increase

Box: “Distribution of growth dividends: evidence from the labor market”

Non-agricultural employment by income groups

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Non-agricultural businesses and employment growth1/

Food

BeverageTextiles

Apparels Rubber&Plastic

Basic metal

Electronic

HDD

Electrical appliance

Vehicle

Automobile part

Construction

Trade

Transportation

HotelRestaurant

-10%

-5%

0%

5%

10%

15%

-15% -10% -5% 0% 5% 10% 15%Employment growth (horizontal axis)

Business growth2/ (vertical axis)

Note: 1/ Business growth and employment growth were the comparison between the averageof Janauary-July 2016 and the average of January-July 2017.

2/ Business growth was calculated from manufacturing production index (for manufacturing sectors), sales derived from VAT (for service sectors), and construction index (for construction sector)3/ Sizes of the bubbles represent share of that sector’s employment in the total manufacturing sector’s employment (for manufacturing sectors) or share of that sector’s employment in the total service sector’s employment (for service sectors).

80

100

120

140

Jan2014

Jul2014

Jan2015

Jul2015

Jan2016

Jul2016

Jan2017

Jul2017

Low-income group (less than 10,000 baht)

Middle income group (10,000-20,000 baht)

Upper middle income group (20,000-30,000 baht)

High-income group (more than 30,000 baht)

Index, 3mm sa (Jan 2014 = 100)

Deleveraging has slowly taken place since beginning of 2016 but still concentrated only in high-income households

Index of Household Debt to Income Classified by Income (Median)

Note: Socio-Economic Survey from National Statistical Office (biennial survey) compared between 2017Q1 and the period during 2007–2017, calculated by Bank of Thailand

Household Debt* to GDP

• Deleveraging is evident among some high-income households primarily on account of a decrease in debt with income broadly unchanged. Meanwhile, low-income households continue to leverage further while income is largely unchanged.

• During deleveraging period, households would consume less and save more in order to pay back their debt. Thus, consumption would grow at a gradual pace in accordance with employment in a low-income group.

Box: “Household debt deleveraging and its implication for the economy”

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0

20

40

60

80

100

120

140

160

180

200

2007 Q1 2009 Q1 2011 Q1 2013 Q1 2015 Q1 2017 Q1

Quintile 1 Quintile 2 Quintile 3Quintile 4 Quintile 5

Quintile 1 = Lowest-income householdsQuintile 5 = Highest-income households

Index (Q1/2007 = 100)Percentage to GDP

81.2

78.4

70

72

74

76

78

80

82

84

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

2014 2015 2016 2017*Notes: Household debt does not include debt under litigation and debt under theStudent Loan Fund

Sources: National Statistical Office, Bank of Thailand, calculated by the Bank of Thailand

115

120

125

130

2014 2015 2016 2017

Aug 17

Private investment is expected to recover albeit at a slower pace

• In the near term, more investment is observed in various industries, consistent with a stronger expansion of private consumption and exports.

• However, certain businesses slow down their investment as there remain excess production capacity and firms are still waiting for greater clarity in the government’s stimulus policies, especially those regarding some infrastructure investment projects.

• In the period ahead, a continuation of public investment and the implementation of the Eastern Economic Corridor Act would help shore up business confidence of both domestic and foreign investors.

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Private investment index

Index, 3mm sa (2010 = 100)

Source: Bank of Thailand

• Public consumption is well on track and expected to increase following a higher proportion of current spending in the 2018 fiscal year budget.

• Public investment slows down due to prior accelerated disbursement and some government agencies that are constrained by disbursement efficiency.

• Most investment projects by state-owned enterprises (SOE) continues as planned, except for the Bangsue-Huamak and Bangsue-Hualampong routes under the suburban train projects, which are delayed somewhat, and a reduction in budget for investment in fiscal year 2018.

• In addition, the promulgation of the Public Procurement and Supplies Management Act, B.E. 2560 might result in a delayed disbursement during the initial phase for some state agencies.

Public expenditure remains an important driver of growth

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Billion Baht 2016* 2017 2018

Government consumption 2,456 2,566 2,710

(2,572) (2,688)

Public investment 936 987 1,123

(1,034) (1,163)

* Outturn, ( ) Monetary Policy Report June 2017

Public spending projection at current prices (calendar year)

Note: * Outturn12 / 23

% YoY 2016*2017 2018

Jun 17 Sep 17 Jun 17 Sep 17

GDP growth 3.2 3.5 3.8 3.7 3.8

- Private consumption 3.1 3.1 3.3 3.1 3.0

- Private investment 0.4 1.7 2.3 3.6 3.0

- Government consumption 1.7 2.2 2.1 1.9 2.7

- Public investment 9.9 7.7 5.0 9.2 9.8

- Exports of goods and services 2.1 4.6 5.9 2.7 3.3

- Imports of goods and services -1.4 4.8 6.5 2.6 3.3

Current account balance (billion USD) 47.7 39.7 42.4 32.7 38.6

- Value of merchandise exports 0.1 5.0 8.0 1.7 3.2- Value of merchandise imports -5.1 10.9 14.0 5.4 6.3- Number of tourists (Million) 32.6 34.9 35.6 37.3 37.3

The economy is projected to grow at faster pace than previously assessed mainly due to stronger growth in exports & tourism

and a continued recovery of domestic demand

Risks to the growth forecast become more balanced in near term but overall remain skewed to the downside

13 / 23

Downside risks:

• Lower-than-expected trading partners’ growth and uncertainties in the US foreign trade policies

• Geopolitical risks could impact trading partners’ growth

• Impacts of economic structural reforms in China

• Uneven recovery of domestic purchasing power that could affect private consumption more than expected

• the stringent regulations on immigrant workers that might affect economic activities more than projected

• the promulgation of the Public Procurement and Supplies Management Act B.E. 2560 might result in a delayed disbursement of some government agencies

Upside risks:

• Economic stimulus policies in the US might result in higher economic growth if their implementation proceed as planned

GDP growth forecast

% YoY

Note: Fan chart covers 90% of the probability distribution

-4

0

4

8

12

-4

0

4

8

12

2557 2558 2559 2560 2561 25622014 2015 2016 2017 2018 2019

Inflation stabilized at low level in near term due to supply-side factors and is expected to slowly rise going forward

• Cost-push inflationary pressures are expected to increase more slowly than projected due too Low prices of fresh food that lead to smaller-

than-expected rises in prepared food priceso Cyclical developments such as oil and food

prices that remain at low levels o Structural factors such as the rising trend of

e-commerce, globalization, and technological advancements

• Going forward, demand-pull inflationary pressures would gradually edge up albeit at a slower pace.o Overall economic growth improves but is not

yet sufficiently broad-based o Intense business competition causes most

businesses to offer sales promotion. This leads overall prices not be able to increase as much as expected

Sep 17 = 0.86

-3-2-10123

2014 2015 2016 2017Raw food price (15.69%) Energy price (11.75%)

Core inflation (72.56%) Headline inflation

Source: Ministry of Commerce, calculated by Bank of Thailand

14 / 23

% YoY 2016* 2017 2018

Headline inflation 0.2 0.6 1.2

(0.8) (1.6)

Core inflation 0.7 0.6 0.9

(0.6) (0.9)

* Outturn, ( ) Monetary Policy Report June 2017

Inflation projections

Contribution to headline inflation

%YoY

-4

-2

0

2

4

6

8

-4

-2

0

2

4

6

8

2557 2558 2559 2560 2561 2562

(2.5 + 1.5)

2014 2015 2016 2017 2018 2019

Risks to inflation forecast remain balanced throughout the forecast horizon

On the upside, the impact from regulations on immigrant workers could be larger than expected. On the downside, economic growth might be lower than previously assessed, and structural factors might cause an increase in inflation to be more slowly than the past.

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Headline inflation forecasts

%YoY

Note: Fan chart covers 90% of the probability distribution

Core inflation forecasts

%YoY

Note: Fan chart covers 90% of the probability distribution

Target inflation (2.5 + 1.5)

-2

-1

0

1

2

3

4

-2

-1

0

1

2

3

4

2557 2558 2559 2560 2561 25622014 2015 2016 2017 2018 2019

Monetary policy remains accommodative

The MPC voted unanimously to maintain policy interest rate at August 16 and September 27 meetings. Their assessments are as follows:

Economiccondition

Thai economic growth continued to improve due to exports and tourism with signs of greater positive spillovers across various sectors of the economy. Domestic demand started to improve; however, factors underpinning consumption were not yet robust. In addition, there are risks on domestic and external fronts.

InflationHeadline inflation was projected to be below the lower bound of the target this year due to supply-side factors. Core inflation remained at low level owing to low demand-pull inflationary pressures and structural factors that led to lower costs of production and more business competition. Consequently, raising prices was more difficult.

Financial condition

Financial conditions remained accommodative as reflected in a low level of the real policy rate which would help support domestic demand growth and facilitate the return of inflation to target.

Financial stability

Financial stability remained sound overall but there remained pockets of risks that might result in buildup of vulnerabilities in the financial system going forward,especially debt serviceability of households and SMEs and search-for-yield behavior in the low interest rate environment.

The MPC views that monetary policy should accommodative and stands ready to utilize available policy tools to support the economic growth while ensuring financial stability.

16 / 21

1.01.52.02.53.03.54.04.55.05.56.0

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Jan-

15

Jul-1

5

Jan-

16

Jul-1

6

Jan-

17

Jul-1

7

1Mn 2Y

5Y 10Y

%

New loan rate (NLR) remains at a low level after having declined.

7.0

6.2

2.75

1.5

5.0

3.9

0

2

4

6

8

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Jan-

15

Jul-1

5

Jan-

16

Jul-1

6

Jan-

17

Jul-1

7

New Loan Rate (NLR)*

MLR RP NLR total%

* The NLR is calculated from interest payments on loan contracts by 14 Thai commercial banks excluding loans to households and financial intermediaries and is weighted by loan size. This covers loan in Thai baht exceeding 20 million baht in all types of loan, objectives, and term, as well as with and without collateral. In addition, interest rates on loan contracts are calculated from the median between the highest and lowest interest rate of each contract.

Government bond yields trend down in all maturitieswhich help lower financing costs through debt markets.

Unit: bps YTDAverage

3Y 5Y1Mn -34 -32 -682Y -24 -14 -555Y -41 -28 -7610Y -25 -9 -59

17 / 23

Thai government bond yields

Policy interest rate at low level continues to support consumption and investment through low financing costs

Source: ThaiBMA and Bank of Thailand

Credit growth in the commercial bank system

16.5**

2.65.8

0

5

10

15

20

25

30

Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Outstanding of corporate bondBusiness creditTotal financing

Growth in business financing outstanding from different sources*

Percentage change from the same period last year

Note: * Business credit covers lending activities of Other Depository Corporations (ODCs) including commercial banks, special financial institutions, cooperatives and money market mutual funds

** In August businesses in telecommunication and energy sectors did not roll over the matured bonds

Aug 17

18 / 23

Loans to households and loans to corporates, of all sizes, continue to expand

Sources: ThaiBMA and Bank of Thailand

2.7

7.0

3.24.4

-5

5

15

25

Q12012

Q12013

Q12014

Q12015

Q12016

Q12017

Corporate loan

Large corporate loans (excluding financialbusiness)

SME loan (excluding financial business)

Household loan

Percentage change from the same period last year

2017Q2

Overall financing continues to expand especially financing through corporate debt markets

Business financing continues to expand

Thailand

Thailand’s REER appreciates only moderately in comparison to other regional economies.

Thailand’s Nominal Effective Exchange Rate (NEER) appreciates somewhat but is largely unchanged from the historical average. Meanwhile, Thailand’s REER remains close to the 5-year average. (data as of September 2017)1/

The baht appreciated against U.S. dollar since beginning of the yearReal Effective Exchange Rate (REER) is largely unchanged

19 / 23Source: Bank of Thailand

85

90

95

100

105

110

115

120

2014 2015 2016 2017

Real Effective Exchange Rate (REER) by country (Index 2014 = 100)

India

Indonesia

Taiwan

South Korea

PhillipinesChina

Singapore

Malaysia

Appreciation

Source: BIS, calculated by Bank of Thailand (data as of September 2017)

Note: %∆ is positive indicates currency appreciation 1/ Data of September was averaged until September 26, 20172/ 3Y and 5Y average calculated from Jan 15 and Jan 13, respectively3/ REER are predominantly determined by assumptions on inflation

of trading partners.

%∆ Dec 2016%∆ 3Y

average2/%∆ 5Y

average2/

USDTHB 8.1% 4.6% 0.7%

NEER 3.0% 2.9% 3.8%

REER3/ 2.3% 1.6% 0.7%

• Uncertainties surrounding U.S. economic stimulus and foreign trade policies

• Chinese economic structural reform and financial stability concerns

• Geopolitical risks

• Uneven recovery of domestic demand• Impacts from regulations on immigrant workers• Promulgation of the Public Procurement and Supplies

Management Act, B.E. 2560 that might result in a delayed disbursement of some government agencies

Financial markets

• The conduct of monetary policy in major advanced economies

• Short-term capital flow volatility• Exchange rate developments

20 / 23

Global economy Thai economy

Thai financial stabilities

• Debt serviceability of SMEs and households• Search-for-yield behavior in the prolonged

low interest that could lead to underpricing of risks

Key issues monitored by the MPC

2016* 2017 2018

GDP growth 3.2 3.8 3.8

(3.5) (3.7)

Headline inflation 0.2 0.6 1.2

(0.8) (1.6)

Core inflation 0.7 0.6 0.9

(0.6) (0.9)

21 / 23

* Outturn, ( ) Monetary Policy Report March 2017

Forecast summary as of September 2017

Forecast assumptions

% YoY 2016*2017 2018

Jun 17 Sep 17 Jun 17 Sep 17

Dubai oil price (USD per barrel) 41.4 50.9 50.9 52.8 52.8

Metal prices (% YoY) –5.3 18.6 20.8 0.5 -0.5

Farm income (% YoY) 1.6 6.5 6.3 4.4 4.3

Public expenditure (calendar year)

- Government consumption (billion Baht)** 2,456 2,572 2,566 2,688 2,710

- Public investment (billion Baht)** 936 1,034 987 1,163 1,123

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

Trading partners’ GDP growth (% YoY) 3.1 3.4 3.6 3.3 3.4

Regional currencies per USD (excl. RMB)*** 154.8 157.6 156.3 159.8 156.4

Attachment

Note: * Outturn** Includes spending in Infrastructure Investment plans*** Higher value indicates currency depreciation against the USD

22 / 23

Assumption on trading partners’ GDP growth

% YoY Weight 2016*2017 2018

Jun 17 Sep 17 Jun 17 Sep 17

United States 14.9 1.6 2.1 2.1 2.1 2.1

Euro 10.0 1.7 1.8 2.1 1.5 1.6

Japan 13.6 1.0 1.2 1.5 1.0 1.1

China 15.7 6.7 6.6 6.7 6.2 6.3

Asia** 37.4 3.5 3.8 4.2 3.8 3.9

Total*** 100 3.1 3.4 3.6 3.3 3.4

Attachment

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

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

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

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