now to the domestic economy. this year a theme that has kept recurring in my presentation of the thai economy is that of risks and adjustment. this is to say that, for thailand, this year has been a year of greater risks and the key theme has been adjusting to risks as the global economic and financial environment has become less helpful. the key external pressure an the thai economy throughout this year has been the higher oil prices, the higher global interest rates, and the potential impact an our exports of a slowing chinese economy. this year, we also have our own domestic challenges. these include the two episodes of bird flu that have affected production and exports of poultry, and the uncertainty linked to the situations in the south which has importantly affected consumer confidence and business sentiment. so, for the most part, the performance of the thai economy this year is essentially a story of how the domestic economy has been adjusting to the risks that emerged. this includes adjustments in the domestic financial markets and the real economy, as well as the implications for economic and financial stability. let me go through each of these points in turn. as for the domestic financial markets, the adjustment has been led by the repricing of financial assets that has been underway since the second quarter. yields on long bonds have been rising. equity prices have declined. there have been some outflows of short - term capital, and the baht has weakened from last year. in all, the adjustment has been smooth and orderly, and has benefited from the flexible market mechanism that underpins the movements of the economy ’ s key prices. and for the real economy, the adjustment has been accompanied by a moderation in growth in the first quarter to 6. 5 percent, led by the slowdown in agriculture because of drought and the bird flu. output of manufacturing and services, however, has continued to expand robustly. on the demand side, the dampened consumer confidence has moderated the momentum of private consumption in the first half of the year, but private investment and exports have expanded well and have been the key drivers of growth so far this year. on this point, it is comforting to note that domestic demand expansion has benefited increasingly more from the pick - up in credit extension, driven by ample liquidity in the system. private credit growth was a high 9 percent at end - june. turning to economic stability, with continued growth, pressure on resources has become more visible this year with output gap continuing to close, inflation rising, the trade surplus

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