However, it may be too premature to put the entire blame on structural flaws. There are a number of cyclical headwinds suggesting that the recent subdued growth could be just a temporary phenomenon. The more diversified export product range in Thailand implies that our global growth ‘beta’ may be lower than that of our specialized hi-tech exporter peers. This is not necessary a shortcoming, since some high-end manufacturing sector such as semiconductor is prone to strong cyclical swings, with a short and sharp upturn followed by a protracted downturn. But by implications, export diversification that helped lessen the impact of global recession then, is limiting our sensitivity to the global recovery now. It may therefore take some time for exports to show a firmer recovery. Another factor weighing on private sentiments and domestic demand until recently is the political development. Economic uncertainties brought about by street protests and threats of violence late last year have had a discernible impact on private spending and tourism. But a political resolution in the second quarter has lifted the fog, and the incoming data since suggest that there has been a steady improvement in private sector confidence. The resumption of public spending is also adding to growth impetus, including through accelerated disbursement of fiscal budget, and infrastructural public investment. The government’s efforts to balance the short-term stimulus needs with the long-term improvement of fiscal spending efficiency should also be welcomed. As the fiscal support starts to kick in, the domestic demand should continue to lead this recovery.

Financial development, indeed, is an integral part of economic development. The relatively small financial market in Thailand means that largescale cross-border activities, especially mergers and acquisition, cannot take place without adversely affecting financial market volatility. Promoting deeper financial market would help facilitate more long-term direct investment that is needed for the economy to upgrade its technological capability. Financial development also entails broader banking and payment issues. For example, diversifying the sources of financing and reducing the degree of dependence on banks, would help the financial system better absorb shocks and improve efficiency of funding. Upgrading the financial infrastructure and payment system is necessary for the economy to reap full benefits from regional trade integration in the new digital age. Implementing financial development is not a straightforward task, and among other things, it is complicated by the need to ensure financial stability. Bigger financial system can increase the system’s fragility, which if left unchecked, could undermine economic development efforts. Financial innovation, in some instances, could encourage risk-taking activity that raises rather than reduces market inefficiencies. These considerations mean that financial development must be accompanied by a robust policy framework that places financial stability as a high priority. This is indeed the practice followed by the Bank of Thailand. Monetary policy On that note, let me briefly discuss the role of the Bank of Thailand in this new environment. Our key contribution to the long-term economic development efforts is to provide a stable macroeconomic and financial backdrop, so that the prosperity can be attained without interruptions.