on the output side, recovery in domestic demand has been met by stronger activities in production. index of manufacturing production rose by 0. 4 percent year on year in september, while the rate of capacity utilization in manufacturing increased to 64. 7 percent. on economic and financial stability, economic stability remains intact in thailand with strong external positions marked by continued current account surpluses, high level of international reserves, and a low and stable external debt. as for inflation, the emerging signs of recovery have not put pressure on domestic prices. cpi inflation remains subdued at a rate of 0. 4 percent year on year in october, reflecting the sizable output gap and well - anchored inflation expectations. on the financial stability front, the banking sector remains resilient with healthy balance sheets and the lending capacity largely preserved. and notwithstanding the strong resurgence of capital flows, the risk of asset price bubble, either in equity or in housing, for now remains low given the slow growth of bank credit and the more subdued initial conditions. the situation on asset prices, however, warrants a close monitoring as credit conditions can change quickly given the ample domestic liquidity. in sum, the thai economy is now in a process of recovery. the economy is poised to return to positive growth next year. at this time, however, the momentum of private sector demand is still not robust with the momentum largely mirroring the support from policy. economic and financial stability, on the other hand, is intact with subdued inflation and a resilient banking sector. therefore, given weak private sector demand, the monetary policy committee is of the view that policy support remains needed as a firm recovery is yet to be established. it was in this context that the policy interest rate was kept unchanged at 1. 25 percent in the last monetary policy committee meeting in october. next, let me share with you our assessment of the outlook for the economy and policy. the assessment i am sharing was made by the monetary policy committee in its meeting in october and is now available in our latest inflation report that has just been published. the key point is that, with the ongoing recovery, the thai economy is set to return to positive growth next year, supported by improvements in the global economy and continued policy stimulus to support private sector demand. a key part of the policy stimulus is the expansionary fiscal policy of which a fiscal deficit equivalent to 3. 9 percent of gdp is set for the 2010 / 2011 fiscal year. stronger momentum in exports, continued policy stimulus, and a recovery in

a resurgence of capital flows to emerging markets and strong rallies in equity markets especially in asia. and for economies that the prospects for recovery look most certain, policy interest rates have started to increase to return policy accommodation to a more normal level, as is the case of australia and norway. in the bank of thailand ’ s monetary policy committee meeting held last month, the committee also shared the view that the global economy is returning to growth with the main impetus being the policy stimulus and a turn in the inventory cycle. looking ahead, prospect for the recovery to continue into next year appears strong given the policy room that exists in the advanced economies to support growth. nonetheless, it also needs to be said that downside risks to recovery remain, as uncertainty that can hold back the recovery momentum remains large. in the case of the advanced economies, the key uncertainties include : first, the high rates of unemployment which could stifle the momentum of consumer spending and private demand – the us unemployment rate in october was 10. 2 percent ; second, the large fiscal debt positions which could heighten investor ’ s concern on fiscal sustainability and put upward pressure on long - term interest rates ; and third, problems in the advanced economies ’ banking systems that could act as a drag on growth because of limited credit availability. these are the uncertainties in the advanced economies that could mark down the pace of global recovery going forward. moreover, high and rising oil prices could also act as a deterrent to economic recovery worldwide. therefore, notwithstanding the consensus on the next year ’ s return to growth, there remains a risk that global economic recovery going forward could be choppy and sluggish. turning to thailand, although the thai banking sector is resilient and has been largely immune to the global financial turmoil, the impact of the crisis on thailand has been quite hard owing to the economy ’ s high dependency on exports. as noted earlier, economic activities contracted sharply in the fourth quarter of last year and in the first quarter of this year, but the situation started to stabilize from the second quarter onward as economic activities began to show signs of improvement consistent with the developments observed elsewhere. latest data for september point to continued improvements in economic activities, both in private consumption and investment, reflecting largely the benefits that domestic demand has gained from fiscal stimulus and supportive monetary policy. exports in september contracted by 8. 3 percent year on year, much lower than the contractions of 17. 9 and 25. 7 percents of the previous two months.