##rough ( erpt ) is quite low. the erpt could be higher in case of large and rapid baht depreciation, especially if coupled with rising oil prices. this could trigger a non - linear passthrough to inflation and could have a contractionary effect to the economy. this has not materialized. we will keep close monitoring. c. in thailand, there is less chance of wage - price spiral given that there remains slack in the labor market. moreover, the nature of the labor market structure in thailand, where there is flexibility in labor movement and a lack of labor bargaining power, has helped suppressed wage pressure and prevented broad - based and persistent increases in inflation. on the contrary, a tight labor market such as in some aes could also set a wage - price spiral effect in motion. in such circumstances, bold rate hikes are necessary to prevent a shift to a high - and - entrenched inflation regime. • thailand has low share of wage earners at 44 % and little wage indexation. • labor cost is relatively low at 15 % of total production cost. ( 2 ) limited risks from fed tightening to derail a smooth take - off 1. depreciation of the baht ( and most other asian currencies ) has been influenced by the us dollar. 2. interest rate differential is not causing the capital outflow. thailand actually saw net capital inflows of 4. 8 billion usd ytd. in the past 8 months, only 3 of out 8 months that saw net capital outflows. 3. given our robust cushions, thailand ’ s financial sector has been relatively shielded from global market volatility : high reserves ( 220 bn usd, 2. 9 times of short - term debt ) and low external debt ( 38. 7 % of gdp ). 4. while we see higher bond yields in the us and thailand, the impact on real economy would still be limited. why? thailand is a bank - based economy where 75 percent of the private sector finance their activities through banks. reliance on the bond market mostly relates to larger corporates with strong balance sheets and thus limited vulnerability to bond yield movements. moreover, bank financing is mainly from deposits, not wholesale funding through the bond market. ( 3 ) low stagflation risks whether the country will face stagflation risk depends very much on both inflation and stagnation factors. 1. inflation is mainly supply - side driven and self - correcting

from very low levels and are being done gradually. in the case of the us, the increase is more of an indication that the fed is regarding the current recovery as being solid. moreover, because the increase in rates is good for maintaining economic stability as well as for addressing global imbalances, the increase in interest rates should be seen as a good thing and should be welcomed. against this background, we at the bank of thailand see the global recovery continuing firmly in the short term despite the higher oil prices. this year, thailand ’ s export market - as measured by gdp growth of our major trading partners - is expected to grow by about 5 percent. this growth will be the key factor supporting our exports this year. at the same time, thailand ’ s exports to china continues to expand, though at a lower rate compared to last year ’ s. hence, the effect of the slowing chinese economy on our exports is a factor that should be monitored closely. for the first half of this year, i am happy to report that thailand ’ s exports to australia grew by 16. 6 percent while imports from australia grew by 38 percent. australia is now thailand ’ s 11th and 12th largest trading partner on exports and imports, respectively, claiming a share of 2. 3 percent of thailand ’ s total trade. and with the recent conclusion of the bilateral free trade agreement between our two countries, trade between our two economies is likely to grow and grow. as for the global financial markets, let me just say briefly that this year global financial markets have been dominated by the changing expectations about the pace and the timing of monetary policy tightening in the us. and this has led to a global repricing of financial assets and some reversal of international capital fows, especially away from emerging markets. so far, the repricing of assets and the unwinding of positions have been quite orderly and the financing of the us current account deficit continues to be smooth. in broad terms, bond yields have increased, equity prices have declined, and the us dollar has appreciated in nominal effective terms. in terms of policy, the key issue in the global economy now is how to manage the transition to a higher interest rates environment so as to safeguard economic stability in view of the continued firm growth. another is the management of the risk that higher oil prices might affect the global recovery. and the third is the issue of addressing the major global imbalances without creating serious volatilities to the financial markets. let me turn