BoT: Farm incomes down 2.6% in July
Nominal farm income registered the first contraction of the year in July, continuing to weigh down on private consumption throughout the third quarter, says a Bank of Thailand senior official.
"Fundamental factors supporting household purchasing power have not yet been reflected in farm income trends, which were affected by a decreasing agricultural price outlook," said Pornpen Sodsrichai, director of macroeconomic and monetary policy at the central bank.
Nominal farm income contracted 2.6% in July, down from the 8.1% growth recorded in June. The decrease represents the first contraction of the year, according to central bank data.
The drop in nominal farm income was due to the drop in agricultural prices in most categories, especially fruits, rice and oil palm.
The downward trend in agricultural prices is expected to continue during the third quarter, propelled by a relative increase in production this year, which compares favourably to last year's, when the country was stricken by drought.
"Agricultural prices decreased because they were on a high base last year, which results in decreased farm incomes in the third quarter and in turn dampens private consumption in the period," Ms Pornpen said.
Private consumption indicators grew 2.3% in July, down from 3.4% in June, mainly due to a contraction in farm income.
Ms Pornpen said high household debt will continue to pressure consumption, especially as low-income earners use a high percentage of their income to repay debts.
However, the overall economy continued to expand in July, mainly driven by expansions in merchandise exports and the tourism sector -- consistent with improvement in external demand.
On a balance-of-payments basis, merchandise exports -- which represent 70% of the country's GDP -- reached US$18.7 billion (621 billion baht) in July, up 8% year-on-year. Excluding the value of gold exports, exports reached $18.5 billion, up 12.2% from a year earlier.
Ms Pornpen said merchandise exports continue to grow in most markets and products, especially in agriculture (which parted from a low base last year), electronics, machinery and equipment.
Manufacturing production expanded in July due to a rise in production for export and domestic consumption, which was reflected in 3.7% growth in the Manufacturing Production Index (MPI), a significant improvement from the 0.3% contraction the index logged in June.
There were 3.1 million tourist arrivals in July, up 4.8% from the same period last year, according to the central bank's data.
Ms Pornpen said private investment indicators gained traction in July due to improvements in the construction sector, as indicated by increases in construction material sales and permitted construction.
Private investment indicators rose 0.9% in July, after posting a 0.9% contraction in June, according to central bank data.
"We have started seeing signs of recovery in private investment in the construction sector this month," Ms Pornpen said, referring to August. "Investment in machinery and equipment has been recovering for a couple of months, following the rise in exports."
Merchandise imports, which reached $17.4 billion, also logged strong performances in August month, with an 18.3% year-on-year growth or $15.9 billion and 10.9% growth, excluding gold, on a balance-of-payments basis.
Ms Pornpen said that the baht appreciated 2% against the greenback in July, mainly from a drop in US dollar value and foreign direct investment in one Thai financial institution.
"In August, the central bank observed that the baht remained stable in July while currency volatility dropped partially," she said.
Headline inflation edged up to 0.17% in July from -0.05% in June, while core inflation rose slightly to 0.48% from 0.45%.