At the same time, employment and labour force participation have increased significantly and unemployment rates have fallen to levels not seen for 25 years. This supports real disposable income and thus consumption growth, although purchasing power is being dampened by the impact of higher energy and food prices. The uncertainty surrounding this outlook for economic growth remains high, and downside risks prevail. In particular, risks relate to the potential for the financial market turbulence to have a more negative impact on the real economy than previously anticipated. Moreover, downside risks stem from the dampening impact on consumption and investment of further  BIS Review 57/2008  1  unanticipated increases in energy and food prices. Risks also arise from protectionist pressures and the possibility of disorderly developments owing to global imbalances. With regard to price developments, annual HICP inflation has remained above 3% for the past six months. According to Eurostat’s flash estimate, it was 3.3% in April 2008. This outturn confirms the ongoing strong short-term upward pressure on inflation, resulting largely from sharp increases in energy and food prices at the global level in recent months. Looking ahead, on the basis of current futures prices for these commodities, the annual HICP inflation rate is likely to remain significantly above 2% in the coming months, moderating only gradually over the course of 2008. Accordingly, we are currently experiencing a rather protracted period of high annual rates of inflation.

Ladies and Gentlemen, looking at the more medium-term prospects, I am convinced that the underlying fundamentals that have been attracting international investors to Thailand over the years are still in place. The country’s overall macroeconomic fundamentals remain  BIS central bankers’ speeches  1  sound against the back-drop of a healthy banking system, low and well-anchored inflation, and the government’s relatively strong financial position. A flexible exchange rate and our strong position in terms of international reserves provide ample cushioning for the central bank to be able to manage capital flow volatility. These solid fundamentals command trust from investors and credit rating agencies. Recently, Moody reaffirmed Thailand’s stable credit outlook citing that “in many respects, Thailand’s credit metrics remain well positioned compared with its immediate rating peers”. 6. Having said this, we cannot take things for granted. In fact, many problems point toward a need for structural reform. The MPC, in its last meeting, expressed concern over a number of structural issues, which, if not addressed, could restrain the country’s potential growth in the long run. These problems include fiscal sustainability, inequality in terms of both income distribution and access to education and health care, as well as supply bottlenecks such as a labor shortage. These problems cannot be solved by monetary policy, but require a concerted effort from all stakeholders. 7. In addition, as we are all aware, the prospect of the Thai economy is largely clouded by political uncertainty, which continues to impair the ability of the government to steer the economy forward.