Thailand Financial Conditions Index...Outlook for Thai economy in 2019 and 2020 4 6 34 45 80 102...

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In focus:Thailand Financial Conditions Index

Hong Kong protests and how they are affecting Hong Kong and Thailand’seconomies

Cambodia at risk of losingthe EU’s EBA in 2020

Scenario analysis for 2020economic growth

Capability analysis, battle towin foreign investment intoThailand versus regional competitors

Constructing a Financial Conditions Index for Thailand and Thailand’s financial conditions over the past two decades

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Outlook for Thai economy in 2019 and 2020 46

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102

Contents

Global economic outlook 2019 and 2020

Outlook for the Thai economy in 2019 and 2020

Interest rates and exchange rates outlook in 2019 and 2020

Outlook for the Thai economy in 2019

Box: Scenario analysis for 2020 economic growth

Bull-Bear: Oil price

Summary of EIC forecasts

In Focus: Thailand Financial Conditions Index

46Outlook for the Thai economy in 2020

52Box: Capability analysis, battle to win foreign investment into Thailand versus regional competitors

96Box: Constructing a Financial Conditions Index for Thailand and Thailand’s financial conditions over the past two decades

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Box: Hong Kong protests and how they are affecting Hong Kong and Thailand’s economiesBox: Cambodia at risk of losing the EU’s EBA in 2020

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Published: in October 201904Short articles on topical events

03Update and analysis of current issues a�ecting the Thai economy and business sectors

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Q4/2019

Thailand’s economy 2019-2020The ongoing trade war triggered a Thai export slump,

resulting in a domino effect on otherdomestic sectors of the economy

EIC anticipates: Thai economic growth of 2.8% in 2019 and 2020

Public construction growth momentum

Government stimulus measures

Continued expansion in the tourism sector

Further escalation of US-China trade war tensions

Impact of the LTV measure on the real estate market

Delay of FY2020 national budget and the efficiency of government disbursement

Impact of a strengthening baht

on exports and tourism

High household debt levels weighing on

consumption growth

Growing NPLsGeopolitical risks

such as Brexit, protests

in Hong Kong, and conflicts

between Japan and

South Korea

Risk factorsSupporting factors

UnitKey indicators 20182019F 2020F

August2019

October2019

October2019

GDP

Private Consumption

Public Consumption

Private Investment

Public Investment

Export value (USD BOP basis)

Imports value (USD BOP basis)

Headline Inflation

Core Inflation

Brent

Exchange rate

Policy rate (end-year)

%YOY

%YOY

%YOY

%YOY

%YOY

%YOY

%YOY

%YOY

%YOY

USD/Brl.

%YOY

THB/USD

%

4.1

4.6

1.8

3.9

3.3

7.5

13.7

1.1

0.7

71.7

31.0

32.3

1.75

3.0

4.5

2.0

3.4

2.9

-2.0

-2.9

0.9

0.6

66.5

-7.3

30-31

1.25

2.8

4.2

1.9

2.8

2.2

-2.5

-3.4

0.8

0.5

64.1

-10.6

30.3-30.8

1.25

2.8

3.2

2.0

2.7

4.9

0.2

0.3

0.8

0.7

62.3

-2.9

30-31

1.25

Compare to previous forecasts Downward revision UnchangedUpward revisionSource: EIC analysis

SCBEIC Forecast summary 2019-2020

EIC revises down 2019F GDP growth to 2.8% (from 3.0% previously) due to prolonged and wide-spreading trade tensions between the US and China. Recently, the trade wars effects not only adversely affect the global manufacturing sector, international trade, and investment, but also slow the service sector down. Moreover, risks of technical recession have been rising in countries with a high degree of openness, including Germany, Hong Kong, and Singapore. In response to global economic slowdown and rising downside risks, central banks around the globe have eased their monetary policies. Countries with fiscal policy space have also implemented fiscal stimulus measures to shore up their economy. For Thai economy, the exports and tourism sectors are not affected only by global slowdown but also strengthening Thai Baht against our competitors and trade partners. As a result, EIC revises down 2019F export growth to -2.5%YOY. On tourism sector, while we maintain our tourist arrival growth at 40.1 million persons, strong Thai Baht prompts us to revise down our tourist spending per head. On domestic demand, recent private consumption and investment spending show signs of slowdown, especially from the property sector and domestic car sales. Moreover, slow economic conditions are reflected by falling employment, especially in the manufacturing sector, slowdown in tourism spending and farm income, and weakening consumer confidence as well as more cautious lending by the commercial banks on the back of deteriorating loan quality and tightening loan standard measures. For the fiscal stimulus measure announced in August, EIC expects its impacts to mainly shore up non-durable consumption in 4Q19F. However, FY2020 budget approval delay could be one of the key risks, especially for new public investment projects.

EIC foresees a slow economic recovery in 2020F and expects 2.8%YOY GDP growth on the back of global economic slowdown and subdued domestic purchasing power due to stubbornly high household debt. Downside risks from prolonged and wide-spreading trade war effects, combined with rising risks of technical recession in countries with a high degree of open-ness remain key concerns. As a result, EIC expects a precarious global economic recovery in 2020F and hence a sluggish Thai export recovery (0.2%YOY). On private domestic demand, EIC foresees a slowdown in private investment due to a fragile export recovery and feeble residential construction activities on the back of the tightening LTV measure. Similarly, private consumption in 2020F is expected to slow down due to stubbornly high household debt and more cautious lending by the commercial banks. Consequently, public investment in infrastructure projects, public consumption, and government stimulus measures are likely to be key factors in shoring up the Thai economic recovery in 2020F.

On monetary policy outlook, EIC maintains our view on another policy rate cut in 4Q19F to 1.25% and keep the policy rate at its record low level throughout 2020F. Despite a surprise policy rate cut in August and recent Monetary Policy Committee (MPC)’s downward revision for 2019-20F GDP growth, we foresee further downside risks from external and domestic demand factors on the MPC’s 2020F forecast of 3.3%. Moreover, 2019F and 2020F inflation rates are likely to miss the lower bound of the inflation target range (1%). As a result, we maintain our view on another policy rate cut in 4Q19F to 1.25%, the record low level. In 2020F, the MPC is likely to keep its policy at 1.25% throughout the year to shore up domestic purchasing pow-er through a lower financing cost. Note that the lower financing cost might not boost substantial new lending on the back of rising economic uncertainties, but it is likely to lower debt service expenses for households and SME business in debt. On financial stability concerns, resulting from prolonged low interest rate environment, EIC believes the MPC is likely to em-ploy macro- and micro-prudential measures to address the issue. On Thai Baht outlook, EIC expects strengthening pressure on Thai Baht, compared with its regional peers, to continue due to massive current account surplus and smaller policy rate cuts by Thai MPC as well as capital inflows to Thailand, resulting from Thai Baht’s status as a regional safe haven currency. We, thus, expect Thai Baht/US Dollar to move in the range of 30-31 in 2020F.

Risks on Thai economy in 2020F could come from both external and domestic factors. Trade war effect remains a key risk, which could be escalated further and hence pose further downside risk to Thailand’s export and tourism sectors as well as our GDP forecasts. Other key external risk factors include geopolitical risks such as Brexit, protests in Hong Kong, and the trade tensions between Japan and South Korea, which could result in a further slowdown in global economy and more volatility in global financial markets. On domestic front, risk factors include smaller financial buffers among Thai households and SMEs, reflected by their rising NPLs on the back of accumulated debt, slow income growth, and structural challenges resulting in concentrated business revenues and household incomes. Moreover, the government budget delay and slow disbursement rate remain key risks factors on economic recovery, looking forward.

EIC revises down 2019F and 2020F

GDP growth to 2.8%

on the back of prolonged and wide-spreading trade tension effects from exports and tourism to private domestic demand

Q4/2019

Thailand’s economy 2019-2020The ongoing trade war triggered a Thai export slump,

resulting in a domino effect on otherdomestic sectors of the economy

EIC anticipates: Thai economic growth of 2.8% in 2019 and 2020

Public construction growth momentum

Government stimulus measures

Continued expansion in the tourism sector

Further escalation of US-China trade war tensions

Impact of the LTV measure on the real estate market

Delay of FY2020 national budget and the efficiency of government disbursement

Impact of a strengthening baht

on exports and tourism

High household debt levels weighing on

consumption growth

Growing NPLsGeopolitical risks

such as Brexit, protests

in Hong Kong, and conflicts

between Japan and

South Korea

Risk factorsSupporting factors

UnitKey indicators 20182019F 2020F

August2019

October2019

October2019

GDP

Private Consumption

Public Consumption

Private Investment

Public Investment

Export value (USD BOP basis)

Imports value (USD BOP basis)

Headline Inflation

Core Inflation

Brent

Exchange rate

Policy rate (end-year)

%YOY

%YOY

%YOY

%YOY

%YOY

%YOY

%YOY

%YOY

%YOY

USD/Brl.

%YOY

THB/USD

%

4.1

4.6

1.8

3.9

3.3

7.5

13.7

1.1

0.7

71.7

31.0

32.3

1.75

3.0

4.5

2.0

3.4

2.9

-2.0

-2.9

0.9

0.6

66.5

-7.3

30-31

1.25

2.8

4.2

1.9

2.8

2.2

-2.5

-3.4

0.8

0.5

64.1

-10.6

30.3-30.8

1.25

2.8

3.2

2.0

2.7

4.9

0.2

0.3

0.8

0.7

62.3

-2.9

30-31

1.25

Compare to previous forecasts Downward revision UnchangedUpward revisionSource: EIC analysis

SCBEIC Forecast summary 2019-2020

5Economic Intelligence Center (EIC)

Q4/2019

Continued synchronized slowdown but monetary easing to help shore up

Economic Growth Inflation Rate Monetary Policy

Direction

• Major economies will expand at a slower pace from trade war effects that are pressuring trade and investment.• The trade slowdown will dampenmanufacturing and exports, but growth in the service sector still hold up.• The labor market remains strong,with a low unemployment rate.

• Core inflation will rise gradually, backed by a tight labor market in major economies.

• The global economic slowdown will weight on oil prices.

• Average oil prices are expected to decline in 2020 from excess supplyand dampened demand.

• Fed - One rate cut is likely in 2020to tackle an economic slowdown and trade war effects.

• ECB - Further policy rate easing is possible and might increase assetpurchase capability in light of slower-than-expected economic growth

• BOJ - Maintain an ultra-low policyrate through the end of 2019 and might opt for additional easing if the economy is severely hit by consumption tax hikes and trade war effects.

Contractionary Expansionary Decreasing Increasing Tightening Easing

Major Events in the Global Economyin 2019-2020

2018 2019F 2020F

Unit : %YOY

JapanEurozoneU.S. China

USTrade war and economic slowdown,government stability after theimpeachment process.

EurozoneBrexit negotiation results, Eurozonepolitics and US auto tariff threat.

JapanEconomic slowdown after consumption tax hike, trade conflflicts with South Korea.

ChinaTrade, tech and currency war with the US affect the economy morethan expected.

Risks

Source : EIC analysis based on data from Bloomberg, Goldman Sachs, J.P.Morgan, Deutsche Bank and Bank of America

Remark : Gauge indicates direction for the rest of the year

2.9

1.9

0.8

6.6

2.3

1.1 0.9

6.1

1.71

0.2

5.8

Global economy 2019-2020

Escalation of the current trade war will continue to soften global economic growth through 2019 and 2020, with many countries opting for monetary easing and accommodative fiscal policies to shore up growth. The overall global economy is expanding at a slower pace. The possibility of a technical recession (economic growth contraction for two straight quarters) rose sharply in countries with high trade to GDP ratios such as Germany, Hong Kong, and Singapore. Growth forecasts in 2020 are also threatened with downward revision due to slower global economic growth — undermined by the trade war — and business uncertainties arising from new risks in many regions such as the protests in Hong Kong, government instability in the Eurozone and Latin American, and friction between Japan and South Korea. In particular, the US-China trade war will continue to hinder the outlook for global investment and business sentiment in the manufacturing and export sectors facing higher costs from tariffs hikes. Production supply chain adjustment in several industries affected by trade tension will also lead to further global trade deceleration. Nevertheless, the solid labor market in many regions, backed by low unemployment rates, will provide thrust to household consumption, which is a likely key growth driver ahead. Aside from trade and investment, effects from the trade war and economic uncertainties have spread into other channels, such as a lower household sentiment, suddenly tightening financial conditions caused by volatility in global financial markets, and a credit growth slowdown among business and household etc. These are among the reasons behind central bank (Fed, ECB, BOJ, PBOC, and others) policy direction towards further monetary easing via policy rate cuts and liquidity injection. The low policy rate will largely help sustain economic conditions, together with an accommodative fiscal policy which will play a significant role in reducing recession risks in the period ahead.

EIC sees three major risks to global economic growth in the remainder of 2019 and 2020; 1) Trade war and friction between the US and China, 2) Geopolitical issues, particularly Brexit and conflict in the Middle East, and 3) Specific risks and exposures in each country which may impact other countries. Adverse effects from the trade war will likely continue as the US and China have almost reached their limits in terms of products subject to higher import tariffs. Thus far the US has already raised tariffs on Chinese imports worth around USD 500 billion, while China increased tariffs on US imports worth around USD 100 billion. While trade talks are underway, the friction has escalated into technology and currency wars. These swelling trade tensions then reduce the chances of reconciliation, whereas the possibility of a trade war endgame remains low from different standpoints of both nations. Con-currently, the EU and automobile exporters worldwide are keeping their eyes on possible auto tariffs from the US — now scheduled for November. On the other side, the ongoing Brexit issue may bring back volatility to the market if the UK cannot come up with any clear path for leaving the EU. Thus, there remain the odds of a no-deal Brexit which will severely affect the UK and the EU economies. Meanwhile, conflicts in the Middle East have intensified after an airstrike on Saudi Arabia’s major oil facilities prompted the US to impose new sanctions on Iran. The attack on Saudi Arabia caused risky asset price and global oil price severe fluctuation, and also fueled uncertainties over the business sector from a sudden fluctuation in global commodity prices. Lastly, specific risks and vulnerabilities in individual countries — such as the ongoing protests in Hong Kong, political instability in Italy, and the Japan-South Korea conflict — will be a drag on regional growth and elevate risks over regional economic expansion if such events end up causing damage to consumer and business sentiment.

Global economic outlook

in 2019 and 2020


Key events of the global economy in 2019-2020

Source : EIC analysis based on data from Goldman Sachs J.P.Morgan Deutsche Bank and Bank of America

Global Economic Risk Map 2019

Risk categories of 2019 global economyEconomy and finance War, military Politics, geopolitics

US-China tensions

Conflict in the Middle Eastand US sanctions on Iran

Eurozone politicsesp. Brexit conclusion

Nuclearization inNorth KoreaHong Kong

protests

Japan-South Korea tensions

Oil supply decline as middle east

turmoil

Growth slowdownof major economies

in eurozone

Economic stability in Argentina and Venezuela

Economic risk fromChina’s economic

slowdown

Trade war Global centralbanks dovish

Brexit with dealor no Brexit

Eurozone + Chinagrowth concerns

Geopoliticaltensions

End of term European Council President Tusk

Donald Tusk ends his second term as the President of the European Council.

Nov

30

Tokyo 2020 SummerOlympics

Republican NationalConvention

G20 Riyadhsummit

Japan will host the 2020 Olympics in Tokyo. The event is expected to boost domestic spending.

The G20 summit hosted by Saudi Arabia will have implications on economic, trade and in-vestment issues.

Aug

Nov

24-27

21-22

The new tariff on USD 156 bn of Chinese goods

A new-round of US tariffs of 15% on Chinese prod-ucts worth USD 156 billion, mostly consumer goods which will be difficult to substitute.

Dec

The 2020 United States presidential election

The US presidential election in 2020 will affect future trade and investment policy

The Republican Party will hold national convention to choose a candidate for the US presidential election.

Nov

3

15

Jun 24

Aug 9

Deadline for decisionon US auto tariff

The deadline of President Trump’s decision on automobile tariffs after delayed by 180 days.

The tariff hike on USD 250 bn of Chinese goods

US tariffs hike from 25% to 30% on Chinese imports worth USD 250 billion

Oct

Oct

15

End of ECBPresident Draghi

Mario Draghi ends his term as the ECB presi-dent, succeeded by Christine Lagarde.

Brexit deadline A Brexit deadline under Prime Minister Boris Johnson

31

Oct

31

Nov

14

Key Theme forGlobal Economy 2019-2020

Major Events ofGlobal Economy 2019-2020

2020

2019

Global Economy

The US economy rose by 2%QOQ SAAR 1 or 2.3%YOY in the second quarter of 2019, slowing from 3.1%QOQ SAAR growth in the previous three months.1 Slower growth resulted from uncertainties over trade policy which hindered private investment, especially non-residential investment that shrank by 4.8%YOY. Global trade deceleration also led to a 2.1%YOY fall in exports. For the remainder of 2019, US economic growth in the latter half will likely soften compared to the first six months of the year due to the effects of the trade war escalation in the second and third quarters. EIC expects the US economy to expand by 2.3% in 2019.

Economic fundamentals still show no sign of recession, but risks to the US economy have been elevating. Recession fears started to rise across financial markets as recession probability in the next 12 months ascended to 37.9%2 — the same level as before the financial crisis in 2008. Employment began to decelerate but household consumption, which accounts for 68% of GDP, continued to expand and will help cushion the economic downturn. However, a sharp contraction in asset prices may undermine consumer wealth and fuel risks to household consumption. For 2020, EIC forecasts a slower US economic growth at 1.7%.

The Fed is open to additional easing amid trade war risks in the US manufacturing sector. Trade war uncertainties and the global economic slowdown have weighed down the US manufacturing sector and exports, as reflected by export-based manufacturing PMI which came at 43.3 in August, lower than the benchmark of 50. Furthermore, PCE inflation has remained below the Fed’s 2% target since the beginning of 2019. Although the tariff hikes have resulted in increasing prices for some products, those higher prices still have no impact on current inflation forecasts, which reckon a gradual pick up on consumer prices. EIC expects that the Fed will make 3 rate cuts in total for 2019, and another cut in 2020.

Eyes on risks to the outlook for the remainder of 2019 and 2020. First, tariff hikes on Chinese imports worth USD 156 billion on December 15 will affect household consumption since the bulk of products in this round are consumer goods (such as phones and laptops) which will become more expensive after the tariff hikes. Second, President Trump’s impeachment may fuel uncertainties ahead of the US presidential election in November 2020.

US economy

1 Quarter-on-quarter, seasonally adjusted and annualized rate2 Based on data from Fed New York (August 2019), calculated from yield spread between 10-year and 3-month bonds — outcome from an inverted yield curve is included.

• As of October 1, 2019, the US dollar (DXY) appreciated by 3.2%YTD. The US dollar will continue its rally as the global economic slowdown prompts investors to resort to safer assets, particularly the US dollar. EIC expects the Thai baht will range between 30.3-30.8 THB/USD by the end of 2019.

• Thai exports to the US — excluding arms and mil i tary weapons — grew 14.9%YOY in the first eight months of 2019. Major export products with high growth were auto tires, auto parts and equipment, canned seafood, processed food, etc. As for the rest of 2019, there are opportunities for Thai exporters to substitute Chinese products to the US market, such as electronics parts (Diodes).

• US direct investment in Thailand rose by 7.0%YOY. The trade war escalation has induced many US companies to expand their production bases out of China to avoid higher tariffs and Thailand is one of those beneficiary countries. For example, the US car tire manufacturer BFGoodrich plans to scale up its production base in Thailand for domestic sales, exports to nearby countries, and supplying leading car automobile factories in Thailand.

Low sign of recession but facing higher risks.

Implications for Thai economy

EIC Outlook Quarter 4/201910

Contribution to GDP growth

Domestic consumption provides thrust tothe US economy amid trade and investment slowdown.

Fed cuts its policy rate as trade war uncertainty

Fed will be growing its balance sheet again,after the end of balance sheet reduction on September

2.3 2.3

1.7

2Q2019 2019F 2020F

Source : EIC analysis as of October 2019 based on data from U.S. Bureau of Economic Analysis, Bloomberg and CEIC

Low sign of recession but facing higher risks

US economy

Unit: %QOQ SAAR

www.scbeic.com

US-China trade negotiations and additional tariffs

An impeachment inquiry against US President Donald Trump

Average working hours

Labor market shows signs of deceleration,reflected by declining work hours.

Unit : Hours per week , 3MMA SA

Contribution to private fixed investment growth

Trade war uncertainties hamper business investment.

Unit: %QOQ SAAR

Note : FX forecast based on Bloomberg Consensus as of October 1, 2019

US dollar index

Perceived as a safe haven, the US dollar willlikely continue its rally.

Unit : Index

Growth (%YOY) Share (%)

+4.8 2.9

Tourist arrivals(Jan19-Aug19)

Growth (%YTD) Share (%)

+7.0 6.8

FDI(2Q2019)


+14.9 12.7

Exports(Jan19-Aug19)


+23.2 7.6

Imports(Jan19-Aug19)

1Q20

16

2Q20

16

3Q20

16

4Q20

16

1Q20

17

2Q20

17

3Q20

17

4Q20

17

1Q20

18

2Q20

18

3Q20

18

4Q20

18

1Q20

19

2Q20

19

Private Consumption Private fixed Investment

ManufacturingRecession

Service (RHS)

Net exportsPrivate fixed InvestmentGovernment spending

Structures EquipmentResidentialIntellectual property

Private fixed Investment

1Q20

16

2Q20

16

3Q20

16

4Q20

16

1Q20

17

2Q20

17

3Q20

17

4Q20

17

1Q20

18

2Q20

18

3Q20

18

4Q20

18

1Q20

19

2Q20

19

38.5

39.0

39.5

40.0

40.5

41.0

41.5

32.6

32.8

33.0

33.2

33.4

33.6

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

USD index appreciated

USD index depreciated

-3-2-10123456

:+"+<F(�(:�D5 �! :+-��@!(:�D5 �! :+D#-=L*!E#-�2<!�Ċ:��-9� :+2ĉ�55 2@� <

GDP

-6

-4

-2

0

2

4

6

8

10

:+-��@!(:�D5 �!

95

96

97

98

99 9!*:*!

+ �:�)

Jan-

19

Feb-

19

Mar

-19

Apr-19

May

-19

Jun-

19

Jul-1

9

Aug-

19

Sep-

19

2019 2020

98.4 93FX forecast

US dollar index

July 31, 2019Fed cut policy rate by 25bps

September 18, 2019Fed cut policy rate by 25bps

in the 2nd time since 2008

Forecast GDP (%YOY)

Watch list

Monetary & fiscal policy Link with Thai economy

GDP

Global Economy

Eurozone economy recorded 0.2%QOQ SA growth in the second quarter of 2019, or 1.2%YOY. For growth by country, Germany shrank by 0.1%QOQ SA as the economy is a large open market with an 87% share of trade to GDP in 2018, and thus hit by external headwinds on the manufacturing sector and exports. Italy has seen zero growth since political uncertainties delayed private investment. This stagnant growth has pushed both Germany and Italy to the brink of a technical recession. Meanwhile, domestic demand helped shore up economic expansion in Spain and France. For the remainder of 2019, the Eurozone economy will face both external and regional risks which increase trade and political uncertainties. EIC expects the Eurozone economy to grow by 1.1% in 2019.

Fiscal stimulus will help bolster growth, but this support might be insufficient. Major economies in the Eurozone are at risk of recession and this has prompted governments in many countries to roll out fiscal stimulus policies to spur growth. Germany has the largest policy space for fiscal spending, given a constant decline in public debt, but the country has enshrined a commitment to fiscal discipline and restrained itself from huge budget deficits. Therefore, Germany is projected to disburse budgets worth only EUR 50 billion — accounting for 1% of GDP — for infrastructure development. On the other side, Italy will likely run a budget deficit of around 2% of GDP in 2020, based on estimations in the draft fiscal budget 2019, which may partly support regional growth. For 2020, EIC expects a 1.0% growth in the overall Eurozone economy.

ECB has pledged more easing to revive economic growth. Risks of weaker-than-expected growth arise as the Eurozone economy continues to face both internal and external headwinds. This prompted the ECB to announce multiple tools for monetary easing at the bank’s policy meeting on September 2019. Such measures consist of; 1) Lowering the deposit facility rate by 0.1% to -0.5%, 2) Introducing a tiered-deposit rate for reserve remuneration, 3) Relaunching the asset purchase program (APP) at a monthly pace of EUR 20 billion with no scheduled end-date, and 4) Changing its forward guidance emphasizing an inflation outlook which remains lower than targeted.

Eyes on economic risks for the rest of 2019 and 2020. These include 1) The EU-US trade talks — a successful deal will reduce the risk of US tariff hikes on automobiles and parts, and 2) The Brexit outcome with key focus on a backstop alternative. EIC views the new offer under PM Boris Johnson being mostly the same as Theresa May’s deal due to time limitations.

Eurozone economy

• As of October 1, 2019, the euro had fallen by 4.6%YTD against the US dollar. The weakening euro was a result of higher recession risk after Germany saw negative growth despite ECB’s additional easing. EIC expects the euro to move to 1.1 USD/EUR by the end of 2019.

• Thailand’s exports to the Eurozone dipped 7.3%YOY in the first eight months of 2019, mainly from a fall in computers and equipment (-19%YOY) and gems and jewelry (-2.2%YOY). The trend of exports to the Eurozone in 2019 will be slower than in prior months, following a higher recession risk in major economies.

• Eurozone direct investment in Thailand contracted by 30.4%YOY in the first half of 2019. The top 3 leading sectors are wholesale and retail trade, computer and electronics manufacturing, and chemical products industry. In August 2019, Germany was among the largest investors in Thailand — second only to Japan — with 6 enterprises and investment capital of around THB 54 million.

Major economies at risk of recession while monetary and fiscal policies point towards accommodative stance to tackle risks.



Government budget balance

With strict fiscal discipline, Germany continued a budget surplus while other economies remainedin deficit.

Eurozone's fiscal deficit toGDP in 2020

ECB will restart asset purchase program(APP) starting Nov 1

Forecast GDP (%YOY)

1.1 1.11.0

2Q2019 2019F 2020F

Source : EIC analysis as of October 2019 based on data from Eurostat, Bloomberg and CEIC

Major economies at risk of recessionwhile monetary and fiscal policiespoint towards accommodative stanceto tackle risks.

Eurozone economy

Unit : % of GDP

www.scbeic.com

US-EU trade negotiations

Brexit options under Boris Johnson

Industrial production index

The German manufacturing sector contracted due to effects from external factors.

Unit : %YOY, 3MMA

Public debt

Germany’s public debt declined, in oppositeto other countries’.

Unit : % of GDP


Euro

The euro tends to weaken as ECB restartedits QE.

Unit : USD/EUR Unit : THB/EUR


-1.5 6.8



-5.5 8.5

FDI(2Q2019)


-7.3 7.0



-11.5 6.6


-0.5

1.7

-2.5 -2.1-2.5

-5

-4

-3

-2

-1

0

1

2

3

Eurozone

World trade GermanyItaly Spain

France

Germany France Italy

2016 2017 2018

Spain0

20

40

60

80

100

120

140

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Germany25-75 percentiles of Eurozone members

Spain France Italy

-30

-20

-10

0

10

20

30

-6

-4

-2

0

2

4

6

Dec-

16

Mar

-17

Jun-

17

Sep-

17

Dec-

17

Mar

-18

Jun-

18

Sep-

18

Dec-

18

Mar

-19

Jun-

19

Euro appreciated

USD-EUR THB-EUR (RHS)

Euro depreciated

1.08

1.10

1.12

1.14

1.16

1.18

2019 2020

1.1 1.1632

33

34

35

36

37

USD/EUR

FX forecast

Jan-

19

Feb-

19

Mar

-19

Apr-19

May

-19

Jun-

19

Jul-1

9

Aug-

19

Sep-

19

Watch list


Japan’s economy expanded 1%YOY in the second quarter of 2019, or 1.3%QOQ SAAR, with primary support from household consumption. The trade war and China’s economic slowdown continue to hamper exports, as evident in an 8.2%YOY fall in shipments in August — a decline of 9 straight months. Meanwhile, private investment started to see signs of deceleration amid trade war uncertainties. Household consumption in the third quarter will be bolstered from front-loaded spending and durable good purchases ahead of a consumption tax hike from 8% to 10% in October, and favorable growth during the first half of this year. EIC expects Japan’s economy to grow around 0.9% in 2019.

Japan’s economic growth will likely slow to 0.2% in 2020, dragged by weak exports and a consumption decline after front-loaded spending. Household spending tended to fell off after bulk purchases before the sales tax hike in October 2019, as the previous tax hike in 2014 resulted in Japan’s economy entering a technical recession from household spending contraction. Nevertheless, EIC envisions the adverse effects from the sales tax increase this time will be less severe than the previous hike since the government has already planned several measures to cushion the impacts. These include reduced tax rates for daily items — such as food, non-alcoholic beverage, and newspapers — and a wide range of financial support. The sales tax increase in 2019 will thus reduce the burden on consumption compared to the previous hike. Meanwhile, export recovery will become sluggish and could be affected by the conflict with South Korea, whilst the public and private investment slowdown will pressure economic growth going forward.

The Bank of Japan (BOJ) will opt for further easing in the face of slower-than-expected growth, to shore up economic expansion amid a volatile global economy and impacts from the consumption tax hike. The BOJ forecasted core inflation at 1.0%, 1.3%, and 1.6% for fiscal year 2019, 2020, and 2021, respectively. All figures remain far below the BOJ’s 2% target, while the latest core inflation figure in August came in at 0.5%. Looking ahead, if economic data points to lower-than-expected growth the BOJ may engage in additional easing by lowering the policy rate and adjusting its target range for long-term interest rates.

Major headwinds Japan’s economy faces are the trade war and the continuing yen appreciation. Upward pressure on the yen will come from the US-China trade war and growing concerns over a global economic recession. A stronger yen will further weigh down Japan’s exports in the future.

Japan economy

• The yen weakened by 1.8%YTD against the US dollar as of October 1, 2019. But the yen will tend to strengthen during the remainder of 2019 as the BOJ has limited room for monetary easing compared to the Fed and the ECB, whilst higher global economic volatility will induce capital inflows to the yen, which is considered a safe-haven asset.

• Thailand’s exports to Japan plummeted by 0.8%YOY in the first eight months of 2019, led by shrinkage in industrial goods. Nonetheless, Thai products still receive privileges under JTEPA3 and AJCEP4 which cover almost all products included under Japan’s GSP.

• Based on data from the Japan External Trade Organization (JETRO), net investment from Japan to Thailand was around USD 2.3 billion in the first half of 2019. This figure was relatively stable compared to previous years. Key support for Japanese investment ahead will come from the production base relocation plans of Japanese corporates to Thailand in order to avoid adverse impacts from the US-China trade war. Sharp, RICOH, and Sony, for example, already plan to expand some electronics production chains into Thailand.

Exports slumps while tax hike will slow household spending.


Global Economy

3 Japan–Thailand Economic Partnership Agreement : JTEPA

4 ASEAN-Japan Comprehensive Economic Partnership : AJCEP


GDP and household consumption growth

Household consumption will likely slow after the sales tax hike.

Additional easing by lowering the policy rate to shore up economic expansion

Several measures to cushion the impacts of the consumption tax hike

Forecast GDP (%YOY)

1.0 1.0

0.2

2Q2019 2019F 2020F

Source : EIC analysis as of October 2019 based on data from Bloomberg and CEIC

Exports slumps while tax hikewill slow household spending.

Japan economy

Unit : %YOY

www.scbeic.com

The progress of trade negotiations with US,

to avoid the threat of autotariffs from US

Japan-South Korea trade dispute

has begun to affecttrade and tourism.

Japan’s export value

Exports plummeted, particular shipments to China and ASEAN countries.

Unit : %YOY, 3MMA

Inflation

Core inflation remains below the BOJ’s target.

Unit : %


Yen

Trade war uncertainties place upward pressureon the yen.

Unit : JPY/USD Unit : JPY/THB


+9.9 4.5



-8.2 17.5

FDI(2Q2019)


-0.8 9.9



-4.3 13.9


Household consumption

Headline inflation

BOJ’s headline inflation target = 2%

Core core inflation (excl. food & energy)Core inflation (excl. fresh food)

Consumption tax hikeApril 2014

Consumption tax hikeOctober 1, 2019

Total exports China Asean US EU

JPY depreciatedJPY/USD

JPY appreciated

-20%

-10%

0%

10%

20%

30%

2016 2017 2018 20193.3

3.4

3.5

3.6

104

106

108

110

112

114 JPY/THB (RHS)

Jan-

19

Feb-

19

Mar

-19

Apr-19

May

-19

Jun-

19

Jul-1

9

Aug-

19

Sep-

19

2019 2020

105 103

FX forecast

JPY/USD

Watch list


-4

-3

-2

-1

0

1

2

3

4

2013 2014 2015 2016 2017 2018 2019

GDP :+"+<F(�(:��+9/D+?5!-2

-1

0

1

2

3

4

2013 2014 2015 2016 2017 2018 2019

Global Economy

China’s economy expanded by 6.2%YOY in the second quarter of 2019, marking the lowest growth in 27 years. The US-China trade war directly hit exports, which edged up only 0.4%YTD in the first eight months of 2019. In particular, exports to the US market plunged by 9.34%YTD. Trade deceleration led to a slowdown in the manufacturing sector, which accounts for 29.4% of China’s GDP. This is evident in manufacturing PMI declining to 49.8 in September, lower than the 50-benchmark, dragged downward by medium and small enterprises. Meanwhile, the service sector will partly help support China’s economy for the rest of this year as reflected by a service PMI remaining above the benchmark at 53.7. Nonetheless, the economy will continue to subside in the latter half of the year, weighed down by trade war escalation which dampens consumer confidence and slows household consumption, especially for durable goods. EIC expects China’s economy to grow by 6.1% in 2019.

China’s economic growth will soften to 5.8% in 2020, despite the government’s massive stimulus efforts. Trade war effects continue to hinder China’s economy, with no end in sight in the near term. This prompted the Chinese government to bolster the economy via public investment to offset private investment, which has been derailed by trade war uncertainties. In addition, China now urges the provincial government to hasten bond issuance up to the quota by year-end. As of August, the provincial government already issued 91% of the total CNY 2.15 trillion quota. The government also stepped up its effort to boost household spending via 20 stimulus measures. These include easing car-purchase restrictions and encouraging clean-energy car purchases, in the hope of bolstering sluggish domestic consumption.

PBOC beefs up monetary easing in response to trade war impacts. Recently, the People’s Bank of China (PBOC) made a reserve requirement ratio (RRR) cut of all banks by 0.5% to the lowest level since 2007, and by 1.0% for commercial banks in qualified cities in order to increase liquidity in the banking sector. EIC sees PBOC likely lowering the medium-term lending facility (MLF) and reforming the loan prime rate to foster business sector and SME liquidity, which will then boost private investment. Looking ahead, China’s monetary policy direction will rely on future trade war events, including; 1) The US tariff hikes to 15% on Chinese imports worth USD 156 billion, to be enforced on December 15, and 2) outcome from the new round of the US-China trade talks in October. For this round, China will appear to gain more bargaining power as President Trump is currently losing popularity from his abuse of power for political gain, pushing him to the verge of impeachment.

China economy

• Rising trade war tensions weakened the yuan by 3.9%YTD against the US dollar as of October 1, 2019. The yuan will likely continue its depreciation if trade tension and the US tariff measures prevail.

• Thai exports to China tumbled by 6.9%YOY in the first eight months of 2019, mainly from primary and intermediate goods such as rubber products (-24.4%YOY), chemical products (-30.4%YOY), and computers and equipment (-15.1%YOY). Meanwhile, consumer goods exports still recorded growth, such as fresh and frozen fruits (105.9%YOY). Nevertheless, Thai exports of consumer goods to China may slow down if the trade war starts to elevate its effects on China’s consumer.

• China’s direct investment in Thailand plummeted by 5.1%YOY in the first half of 2019, yet some industries have received higher investment capital, especially rubber and plastics. For example, the Chinese car tire manufacturer Sailun Tire is preparing to relocate its car tire production base from China to Thailand in order to avoid uncertainties from the prolonged trade war.

Government unveils massive stimulus to wrestle with trade war effects.

Implications forThai economy


China official purchasing managers’ index

The manufacturing sector receded but the service sector still recorded growth.

PBOC will ease monetary policy further

Loan Prime Rate reform is expected tomake borrowing costs cheaper especiallyfor businesses

6.2 6.15.8

2Q2019 2019F 2020F

Source : EIC analysis as of October 2019 based on data from Bloomberg and CEIC

Government unveils massive stimulus to wrestle with tradewar effects

China economy

Unit : Index

www.scbeic.com

US proposed a new round of tariffs

on USD 156 bn worth of Chinese imports

US-China trade negotiations

before 2020 US Presidential election

Lending rate

Loan prime rate reform will help lower corporateinterest rates and indicate financial market conditions more accurately.

Unit : %

Automobile sales

Households and corporates slowed their durablegoods purchase.

Unit : %YOY


Yuan

A weakening yuan helps cushion the effects of the tariffs on Chinese exporters.

Unit : CNY/USD


-0.8 28.9



-5.1 13.6

FDI(2Q2019)


-6.9 11.4



-0.7 20.4


Manufacturing

Expansionary

Contractionary

Service Passenger cars Commercial vehicles

2016 2017 2018 2019

4

5

6

7

8

2014 2015 2016 2017 2018 2019

1Y Loan Prime Rate

1Y benchmark lending rate

Weighted Lending Rate

Jan-

18

Feb-

18M

ar-1

8

Apr-18

May

-18

Jun-

18Ju

l-18

Aug-

18

Sep-

18Oct

-18

Nov

-18

Dec

-18

Jan-

19

Feb-

19M

ar-1

9

Apr-19

May

-19

Jun-

19Ju

l-19

Aug-

19

Sep-

19

CNY depreciated

Lower than 1Y benchmark lending rate by 10bps

June 15, 2018The US imposed 25%

import tariffs on USD 50billion Chinese goods

Aug 1, 2018The US imposed 10% import

tariffs onUSD 200 billionChinese goods

May 10, 2019The US raised tariffs

on USD 200 billionto 25% from 10%

CNY appreciated

48

50

52

54

56

58

60

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019-30

-20

-10

0

10

20

30

6.2

6.4

6.6

6.8

7.0

7.2

2019 2020

CNY/USD

FX forecast

7.2 7.2

Sep 1, 2019The US imposed 10% import tariffson USD 104 billion Chinese goods

Forecast GDP (%YOY)

Watch list


Global Economy

Hong Kong protests and how they are affecting Hong Kong and Thailand’s economies

The mass protests in Hong Kong has been ongoing for more than three months and are becoming increasingly violent. The intensified protests have stalled trade and investment in the country, deterred business sentiment, and weighed down the Hong Kong’s economy. These impacts will also have spillover effects on Thailand’s economy through trade and tourism channels.

How did the protests start off?The protests started off as demonstrations against the draft extradition bill and escalated into a march for democracy in Hong Kong. The first demonstration took place on June 9, with protesters demanding the government withdraw a draft extradition bill which, in their view, would put Hong Kong under mainland China’s legislative power by allowing China to extradite political prisoners from Hong Kong to the mainland. The protests continued despite the government’s decision to suspend the draft bill work on June 15, as protesters still called for a full withdrawal of the draft bill, and announced their five demands :

1. A full withdrawal of the draft extradition bill.2. A retraction of the word ‘rioters’ used in characterizing the protesters.3. Amnesty for previously arrested prisoners.4. An independent commission of inquiry into alleged police brutality.5. Carrie Lam’s resignation, and universal suffrage in elections for Hong Kong’s legislative council and Chief Executive.


Effects on Hong Kong’s economy?The mounting protests have directly impacted Hong Kong’s economic growth, which shrank by 0.4%QOQ SA in the second quarter of 2019, compared to 1.3%QOQ SA growth in the first quarter. The protests have affected Hong Kong’s economy in two ways;

1) Business and investor confidence : The Hang Seng stock index dipped by 1465.3 points or -5.3% since the demonstrations erupted in June. Uncertainties arising from the protests indeed affect the earnings of listed corporates and also investment flows into Hong Kong, as businesses delay investment and consider leaving the country until the protests peter out.

2) The tourism sector : Over the past 5 years, the number of tourist arrivals in Hong Kong averaged around 60 million per year and 77% of them were Chinese travelers. Spending by Chinese tourists also ranked the highest among all visitors, about 1.2 times higher than overnight visitors and 2.9 times higher than one-day visitors. The ongoing protests and airport shutdown directly affect the number of arrivals in Hong Kong. Uncertainties over the protest situation have weighed down on tourist confidence, as some decided to delay their arrival plans in Hong Kong or turned to other nearby destinations instead. As a result, the number of tourist arrivals in Hong Kong plunged by 4.8%YOY in July, a sharp decline from the first quarter, which saw an expansion of 16.8%YOY. The decline in tourist numbers also acted as a domino effect on the earnings of tourism-related businesses such as transportation, tourism service, retail trade, and hotels and restaurants.

Until now (October 8), the Hong Kong’s government agreed to follow only one demand — the complete withdrawal of the draft extradition bill on September 4 — but refrained from responding to the others, particularly the fifth demand calling for transforming the nation’s Chief Executive election system to universal suffrage. Considering the far different standpoints between the protestors and the government of China and Hong Kong, the mass demonstrations are likely to continue and even become more violent as mutual agreement between both sides is unlikely

Figure 1 : Tourists delayed their arrival plans to Hong Kong due to the ongoing protests.

Source : EIC analysis based on data from Hong Kong tourism board and CEIC

Inbound visitor arrivals in Hong KongUnit : %YOY, 3MMA

-20

-15

-10

-5

0

5

10

15

20

25

30

35

2011 2012 2013 2014 2015 2016 2017 2018 2019

Mainland China Others

Shenzhen’s residents are

to be limited to one visit

per week to Hong Kong

The Hong Kong

protests began

Economic Intelligence Center (EIC) 19

Global Economy

Figure 2 : The protests may also affect the earnings of businesses that are closely linked to tourism.

Source : EIC analysis based on data from Hong Kong tourism board and CEIC

Spending of Inbound Visitor Arrivals by businessesUnit : billion HKD (2018)

Aside from domestic unrest, Hong Kong also faces high risks of economic recession from external factors, particularly the US-China trade war. Trade tension has weighed down on global trade and fueled business uncertainties worldwide. As a result, Hong Kong’s exports plunged by 4.2%YOY during January-August 2019. Should the protests extend into the third quarter, Hong Kong’s economic growth will likely contract in the third quarter compared to the previous three months. If this eventuates it will put Hong Kong’s economy into a technical recession during the third quarter of 2019.

0 20 40 60 80 100 120

Others

Food and beverage services

Accommodation services

Retail trade

Mainland China Others


Effects on Thailand’s economyHong Kong’s protest will have no direct effect on Thailand’s economy, but there might be spillover effects from Hong Kong’s economic slowdown impacting Thai exports and the tourism sector.

1) Effects on trade : Hong Kong was the fifth-largest Thailand’s trade partner in 2018, with total shipments to Hong Kong accounting for 5% of total Thai exports. This makes Hong Kong a strategic trade point for Thailand and a door connecting Thai products to the China’s market. The ongoing demonstrations and uncertainties over the US-China trade war have heightened pressure and risks to Thai exporters. During January-August, Thai exports to Hong Kong shrank by 7.5%YOY. Key export products to Hong Kong are automobiles and parts, computer and parts, gems and jewelry, chemical products, and plastic and rubber products.

2) Effects on the tourism sector : As the protests continue with no sign of dying down, Chinese tourists are turning from Hong Kong to other destinations in Southeast Asia — including Thailand. Chinese tourists have played a big role in Thailand’s tourism sector and accounted for 27.5% of total foreign visitors in 2018. The 18.9%YOY increase in Chinese travelers in August may help offset a shortfall in the first half of 2019, although the total number of Chinese tourists in Thailand during January-August remained in contraction at 0.8%YOY. Nevertheless, if Hong Kong enters into an economic recession, the number of tourists from Hong Kong, which accounts for 2.7% of total foreign visitors in Thailand, may fall off. In August, the number of arrivals from Hong Kong saw a 2.4%YOY decline, but total Hong Kong visitors during January-August still expanded 4.0%YOY.

Looking ahead, EIC views that the Chinese government will not abide by all of the demands by the protestors, especially the fifth demand calling for election system reform, including universal suffrage in Hong Kong’s legislative council and Chief Executive election since it would break with the principle of “one country, two systems” that has been in effect in Hong Kong since the handover from Britain. At the same time, China’s government is determined not to send any troops or use any violent measures against the Hong Kong protesters, since any brutal intervention will severely affect foreign investment in Hong Kong and may be used against China’s communist party.


Global Economy

2020 Global Economic Outlook: Key Regions

Trade war impacts will continue weighing on US economic growth in 2020. The manufacturing sector, exports, and private investment showed signs of deceleration in 2019 due to trade tension pressure. These impacts may further expand to the service sector and labor market as evident in the slowdown of services on the purchasing managers index (service PMI), nonfarm payrolls, and work hours.

EIC expects the US Federal Reserve (Fed) to continue its monetary easing but further rate cuts may face higher constraints. Given a slower economic growth outlook which may pressure domestic purchasing power, the Fed will likely maintain its expansionary monetary policy. However, the room for further rate cuts in 2020 will depend on when and how the US and China reach an agreement to end or ease their trade tensions. EIC believes that if both nations can come up with a deal, an agreement will likely happen in the second and the third quarter so that President Trump can tout the deal in his election campaign. Trump may need to wait for a final result of Democrat presidential primaries and caucuses in mid-July 2020 to make a strategic plan for his presidential election campaign in November 2020.Thus, if the US economy still shows signs of deceleration, the Fed may announce another rate cut to 1.5% (the upper bound of the Fed fund rate) in 2020.

As for the US fiscal stimulus, the Congressional Budget Office (CBO) estimates that US fiscal deficits to GDP will range between 4.1%-4.2% of GDP during 2020-2021 (compared to 4.2% in 2019). This figure shows that the ratio of US deficits to GDP has not much increased despite a continuous fiscal deficit policy. This signals that the chance of a massive stimulus, such as tax cut measures, is relatively low

Downside risks remain high due to the technical recession risk in Germany and Italy, which are the first- and the third-largest economies in the Eurozone. The risk of recession may also expand to other countries in the region. Looking ahead, key downside factors weighing on Eurozone growth will likely come from trade war effects and uncertainties over EU-US trade talks on automobile tariffs. In addition, uncertainties from the Brexit outcome and future UK-EU relationship, particularly trade and investment, will likely remain risks to the region’s economic growth. EIC expects the ECB to continue its expansionary monetary policy but with higher constraints. The European Central Bank (ECB) — in presidential transition from Mario Draghi to Christine Lagarde — is still signaling a direction towards monetary easing. This is evident in the low Deposit Facility Rate (DFR) and the relaunch of the Asset Purchase Program (widely known as Quantitative Easing) at a monthly pace of EUR 20 billion starting November 1, 2019. As for additional easing in 2020, EIC sees the ECB will face constraints such as the issuer limit for government bond purchase at 33% of government bond market value in each country. The latest rate cut, which applied only to deposit rates (DFR) but excluded the two lending rates — Main Refinancing Operation Rate (MRO) and Marginal Lending Facility Rate (MLF) — also signify the ECB limitation of further dovish moves.

An economic boost via fiscal stimuli may be limited under the current fiscal discipline. In the Eurozone, each government has the right to make individual decisions on economic stimulus measures. Given high downside risks in Eurozone economic outlook, each country tends to rely more on fiscal measures to uplift the economy. Nonetheless, fiscal policy planning among Eurozone countries must adhere to the EU’s Stability and Growth Pact, which sets a state’s budget deficit to GDP ratio at below 3% each year. Among the four largest economies in the Eurozone, budget deficits were 2.0-2.5% of GDP in France, Italy, and Spain in 2018. Only Germany continued a budget surplus during 2014-2018 of around 1.7% of GDP

US Economy

Eurozone Economy


Economic growth will likely remain low as household consumption will likely be sluggish after a consumption tax hike from 8% to 10% in October 2019, while the US-China trade war con-tinues to hamper Japanese exports. Japan’s economic outlook, especially in the first half of 2020, will face headwinds from a household consumption slowdown due to front-loaded spending in 2019. Nevertheless, effects from the 2019 consumption tax hike are expected to be lower than the previous hike in 2014 as the government plans several measures to alleviate the burden on household spending. These include maintaining an 8% sales tax for necessary products such as food, non-alcoholic beverages, delivery services, and newspapers, etc. The government also offers reward-point rebates for purchases via cashless payment and financial support for elderly low-income citizens and families with small children. Overall investment is expected to see a stagnant recovery due to global economic uncertainties, but the Japanese private sector remains positive over investment expansion in labor-saving technology to solve constraints from a labor shortage. Meanwhile, the export slowdown will likely continue from production chain adjustment caused by the US-China trade war and conflict with South Korea.

EIC believes that Japan still has room for further monetary and fiscal policy easing, but the policy space is limited, and any dovish move may face some constraints. The Bank of Japan (BOJ) can make a further rate cut or allow more flexibility to its yield curve control. Still, the BOJ needs to take into account banking system stability and side effects of the negative interest rate to financial institutions, particularly pension funds. Furthermore, the BOJ will face limitations over the purchase of government bonds (QQE), ETF, and J-REIT in the near term since its shares of these asset holdings has been rising and this might cause market distortion in the long run. For fiscal policy, Japan’s government may come up with additional stimuli in some specific areas to boost private investment and consumption, but such stimuli will face government budget constraints due to high public debt and budget allocated for an ageing society support

The prolonged trade war with the US may drag China’s economic growth down to below 6% for the first time. Economic figures in the latter half of 2019 reflected adverse impacts from the US-China trade war, which affected not only overall manufacturing and exports but also pri-vate investment and household durable goods consumption such as automobiles. These types of accumulated impacts from rising trade protectionism measures will continue to weigh on China’s economic growth.

A high-level debt to GDP will deter PBOC from monetary easing via interest rates in 2020. In the latter half of 2019, the People’s Bank of China (PBOC) eased monetary policy by reducing the reserve requirement ratio (RRR) for all banks and implemented additional easing via lower interest rates. Looking ahead, PBOC’s accommodative move will depend on an assessment of how long the effects from tariff barriers will continue. The rebound of household and corporate debt financing will also tighten the policy space for future easing by the PBOC. However, the exchange rate policy of setting an official midpoint reference for Chinese yuan per US dollar can be another tool to ease financial conditions. The PBOC may gradually weaken the yuan via the reference rate and monitor the financial market response in order to prevent massive capital outflows as seen in 2015.

China’s expansionary fiscal policy will maintain its direction of gradual support. Despite the trade war impacts, which continue to soften economic growth in 2019, China’s fiscal measures are still directed toward economic support, such as lower taxes and fees to shore up the business sector. For now, China aims not only to achieve its quantitative growth target, but also induce high-quality and sustainable growth in line with the nation’s development strategy

Japanese Economy

Chinese Economy


ASEAN 4 economy

In the second quarter of 2019, ASEAN 4 economic growth saw a deceleration in all countries except for Malaysia, on the back of the US-China trade war which has been ongoing since the second half of 2018. Slowing global trade and an electronic product cycle downturn — particularly semiconductors and smartphones — have resulted in an ASEAN 4 export contraction from the beginning of 2019. The notable exception was the Philippines, where exports rebounded in the second quarter. Overall investment also saw sluggish growth in the second quarter owing to slow private investment hindered by trade war uncertainties and delayed infrastructure construction projects in Indonesia and the Philippines. However, private consumption growth remained favorable, backed by low unemployment. In June 2019, the unemploy-ment rates of Indonesia, Malaysia, the Philippines, and Singapore were 5%, 3.3%, 5.4%, and 2.2%, respectively. These numbers were relatively low compared to previous levels. The economic outlook ahead mainly relies on private consumption and country-specific factors.

Indonesia expanded by 5.05%YOY in the second quarter, a slight slowdown from growth of 5.07% during the pre-vious three months. Exports continued their decline since January, dragged down by a stagnant recovery in commodity prices — such as rubber and palm oil — and effects from the trade war. Meanwhile, lower fiscal deficits plans in 2019 and 2020 have held up growth in fiscal expenditures on infrastructure construction. Sluggish inflation and growth out-look prompted Bank Indonesia to make three cuts to the policy rate since the beginning of 2019, from 6% to 5.25% in September. Further rate cuts are also expected. EIC sees household consumption driving Indonesia’s economic growth ahead, considering the solid growth in retail sales and a favorable unemployment rate.

Malaysia accelerated to 4.9%YOY in the second quarter, up from a 4.5%YOY growth during the previous three months, thanks to firm private consumption and investment. Exports remained stable during the first half of 2019 as an increase in electronics shipments helped offset shrinking commodity exports. In May 2019, the Bank Negara Malaysia cut its policy rate from 3.25% to 3%. EIC expects that private consumption and exports from a stable ringgit against the USD will help bolster Malaysia’s economic growth ahead.

The Philippines slowed to 5.5%YOY in the second quarter, down from 5.6%YOY growth during the previous three months. Decelerating growth was a result of a contraction in private investment and delayed infrastructure projects, which slowed public spending. Meanwhile, exports recovered in the second quarter, led by electronics and fruit exports. Since the beginning of this year, the central bank of the Philippines has made three cuts to its policy rate, from 4.75% to 4.00% owing to a dim outlook for economic growth and inflation. Further rate cuts are likely since the central bank raised the policy rate by as much as 175 basis points (from 3% to 4.75%) in 2018. Going forward, EIC predicts that growth in the Philippines will be driven by fiscal stimulus and public spending in “Build Build Build” projects and new infrastructure investment under government plans.

Singapore saw a sharp slowdown to 0.1%YOY in the second quarter, from 1.1%YOY growth during the previous three months. Contraction was seen across most sectors, including private consumption and exports. Manufacturing continued to fall owing to trade war effects and high linkage to the Chinese economy. Core inflation continued to decline to 0.8%YOY in August. EIC expects that the Monetary Authority of Singapore will reduce the slope of the nominal effec-tive exchange rate (NEER) policy band to slow the pace of Singapore dollar appreciation compared to trade partners as inflation is trending down.

The monetary and fiscal policy stances in ASEAN 4 countries are expected to be more accommodative in order to boost economic growth during the remainder of 2019 and 2020 amid higher global economic risks. In addition to household consumption — a likely key growth driver, accommodative monetary policy together with fiscal stimuli via government spending and public infrastructure investment will help sustain the region’s economic growth ahead despite the remaining risks from the US-China trade war.

Export plummet slows growth, but economiesstill bolstered by domestic demand


Trade war effects slowed the overall growth of ASEAN 4 economies during the second quarter of 2019, especially in Singapore, but Malaysia’s growth prospects remained firm.

ASEAN 4 exports plunged in the first half of 2019 and will remain in contraction as a result of trade war uncertainty and China’s economic slowdown.

Domestic consumption in Malaysia and Indonesia expanded in the second quarter thanks to an improved labor market, while technical recession risks softened consumption in Singapore.

Sluggish expansion of ASEAN 4 investment was a result of worsened investor confidence and delayed public investment projects.

ASEAN 4 currencies slightly weakened in the second quarter due to rising pressure from the re-escalated trade war on capital flows and central bank rate cuts.

ASEAN 4 central banks opted for a more dovish stance against the backdrop of heightening external risks and slower economic growth.

ASEAN 4’s GDP growth

ASEAN4’s Export growth

Retail sales

Gross fixed capital formation

ASEAN4’s currencies against US dollar

ASEAN 4’s policy ratesUnit : %YOY

Unit : %YOY

Unit : %YOY

Unit : %YOY

Unit : index, January 2015 = 100

Unit : %

Source : EIC analysis based on data from CEIC IMF Asian Nikkei Review Bloomberg and National Bureau of Statistics of ASEAN 4

4.55.07

5.6

1.1

4.9 5.055.5

0.10

1

2

3

4

5

6

7

Malaysia Indonesia Philippines Singapore

Q2/2018 Q3/2018 Q4/2018 Q1/2019 Q2/2019

3.00

5.25

4.00

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

Jan-18

Feb-18

Mar-18

Apr-18

May-18

Jun-18

Jul-18

Aug-18

Sep-18

Oct-18

Nov-18

Dec-18

Jan-19

Feb-19

Mar-19

Apr-19

May-19

Jun-19

Jul-19

Aug-19

Sep-19

Malaysia

Indonesia

Philippines

-30

-20

-10

0

10

20

30

40

50

Jan-17

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Malaysia Indonesia Philippines

Singapore China

-10

-5

0

5

10

15

20

25

30

35

Mar-16

May-16

Jul-16

Sep-16

Nov-16

Jan-17

Mar-17

May-17

Jul-17

Sep-17

Nov-17

Jan-18

Mar-18

May-18

Jul-18

Sep-18

Nov-18

Jan-19

Mar-19

May-19

Indonesia Malaysia Philippines Singapore

-15

-10

-5

0

5

10

15

20

25

Jan-17

Mar-17

May-17

Jul-17

Sep-17

Nov-17

Jan-18

Mar-18

May-18

Jul-18

Sep-18

Nov-18

Jan-19

Mar-19

May-19

Jul-19


90

95

100

105

110

115

120

125

130

Jan-

15

Apr-15

Jul-1

5

Oct

-15

Jan-

16

Apr-16

Jul-1

6

Oct

-16

Jan-

17

Apr-17

Jul-1

7

Oct

-17

Jan-

18

Apr-18

Jul-1

8

Oct

-18

Jan-

19

Apr-19

Jul-1

9


Depreciated Appreciated


CLMV economic growth will likely moderate to around 6-7% in 2019 and 2020 as external risks have become more pronounced. The global economic slowdown caused by the trade war began to have spillover effects on the CLMV economies, as reflected by an 8%YOY fall in export value during the first five months of 2019 (based on data from IMF DOTS), dragged down by slowing exports to Asian trade partners. Nevertheless, foreign direct investment (FDI) continued to increase as the current trade war helped accelerate production relocation to CLMV countries, particularly to Vietnam. In addition, the tourism and service sectors are expected to be key economic drivers ahead as a buffer from weak exports. Meanwhile, an urbanization trend and expanding middle-income class will also support domestic purchasing power in the long term.

Cambodia’s economic growth remains favorable at around 6.8% in 2019, but shows signs of a slowdown in the medium term. Progress in economic reforms will be a key supporting factor for exports and FDI, but the risk of losing the EU’s Everything But Arms (EBA) scheme is looming. The tourism sector presents promising prospects over the medium term. However, a big challenge to the Cambodian economy lies in unregulated microfinance institutions.

Laos’ economic growth will rebound to 6.4% in 2019 and mildly accelerate to 6.5% in 2020, after severe floods stunted growth in 2018. Laos’ major economic drivers are electricity exports, infrastructure construction, and a service sector led by wholesale and retail trade and tourism. Nevertheless, key risks to Laos’ economy arise from low foreign reserves and worsening debt sustainability, which resulted in TRIS downgrading Laos’ sovereign rating from BBB+ with negative outlook to BBB with stable outlook in July 2019. Myanmar’s economic growth will slightly moderate to 6.4% in fiscal year 2018/19 (FY2018/19), supported by the domestic industrial and service sectors. Government reforms and investments are expected to boost the economy before the 2020 general election. Downside risks to Myanmar come from external factors, mainly the global trade slowdown which began to affect exports and FDI, and the delayed government economic reforms.

Vietnam’s economic growth will soften to 6.5% in 2019 and over the medium term. The US-China trade war will bring opportunities for exports and FDI to Vietnam, but also put the country at risk as the next target of US tariffs. Furthermore, Japan-South Korea trade frictions could affect the Vietnamese manufacturing sector as the country relies on South Korean tech materials.

Overall, major risks to CLMV economies in 2019 and 2020 are slower-than-expected global growth (especially from China, which has a great influence over CLMV economic prospects), rising country-specific challenges, and continued current account deficits. China’s economic slowdown has become an important factor in CLMV eco-nomic outlook since the region heavily relies on China in terms of trade, investment, and tourism. Moreover, prolonged current account deficits will pressure CLMV currencies and fuel risks of sudden depreciation from such events as capital outflows, given a high external vulnerability, particularly in Laos and Vietnam where foreign reserves in months of imports were lower than the IMF’s 3-month standard (data as of 2018).

CLMV economy

Growth to slow amid higher external risks and country-specific challenges CLMV Monitor

Q3 2019


CLMV economic growth is likely to moderate over the medium term amid rising headwinds from the US-China trade war and country-specific risks.

A high reliance on China poses risks to CLMV economies, especially to Laos.

EBA removal may affect exports, particularly in Cambodia where the EU is the major export market.

CLMV exports started to feel the impact from the US-China trade war and slowing global demand. Only Cambodia saw export growth during the first half of 2019.

CLMV currencies moved under the central bank’s control, except for the Myanmar Kyat, which has continued to weaken since the country lifted its currency band in mid-2018.

CLMV’s economic growth 2018-2020

CLMV’s reliance on China, 2016-2018 Export destinations of Cambodia and Myanmar in January-October 2018

CLMV’s export growth CLMV currencies against the US dollar

Unit : %YOY

Unit : % of total export/ FDI/ visitor arrivals Unit : % of total export

Unit : %YOY 3MMA Unit : Index, January 2015 = 100

Country-specific risks

The removal of the EU’s EBA in August 2020 will adversely affect both manufacturing and exports of garments and footwear, which have been the country’s economic backbone.

High public debt — mostly in foreign currencies, low foreign currency reserve buffers, and high dependence on China in terms of trade and investment.

The risk of losing the EU’s EBA from the ongoing Rohingya crisis will affect future exports, while sluggish economic reforms continue to hinder investor confidence.

Exports to moderate amid the global economic deceleration, but the country may benefit from export substitution and production relocation trends.

Source : IMF WEO April 2019, *Laos data as of August 2019

Source : EIC analysis based on data from IMF, ASEANStats, Bloomberg and CEIC

7.3

6.3

6.7

7.1

6.8

6.4 6.46.5

6.7

6.56.6

6.5

Cambodia Laos* Myanmar Vietnam

2018F 2019F 2020F

8%

26%

33%34%

79%

19%

33%

13%16%17%

7%

32%

Goods exports FDI Visitor arrivals

Cambodia Laos

Myanmar Vietnam

38%

23%

8%

7%

3%

20%

EU US Japan China Thai Others

15%2%

7%

34%

20%

23%

Cambodia Myanmar

-20

-10

0

10

20

30

40

50

Mar-17

May-17

Jul-17

Sep-17

Nov-17

Jan-18

Mar-18

May-18

Jul-18

Sep-18

Nov-18

Jan-19

Mar-19

May-19

Cambodia Laos Myanmar Vietnam

86

88

90

92

94

96

98

100

10290

100

110

120

130

140

150

160

Jan-

15

Apr-15

Jul-1

5

Oct

-15

Jan-

16

Apr-16

Jul-1

6

Oct

-16

Jan-

17

Apr-17

Jul-1

7

Oct

-17

Jan-

18

Apr-18

Jul-1

8

Oct

-18

Jan-

19

Apr-19

Jul-1

9

Cambodia Laos Myanmar Vietnam ADXY (RHS)

Depreciated

Appreciated


Cambodia at risk of losing the EU’s EBA in 2020

What is the Everything But Arms (EBA) privilege? And how crucial it is to Cambodia’s economy?Everything But Arms, or EBA, is the most generous trade privilege granted by developed nations (Figure 1) to least developed countries (LDCs), including Cambodia. Under the EBA regime, all imports from LDCs are eligible for duty-free and quota-free access to the EU single market, except arms and ammunition. The regime aims to support economic development in LDCs, notably export-oriented in-dustries. EBA privileges from the EU have been key factors bolstering Cambodia’s export-oriented industries over the past two decades, especially the garment and footwear sector which became the country’s economic backbone. The sector alone accounted for 40% of the Kingdom’s GDP and con-tributed to around 2% of economic growth. Garments and footwear also constitute Cambodia’s largest export product, with a 75% share of total exports in 2018. The sector has helped generate more than 1 million jobs for local people and lifted around 33% of the total population out of poverty, according to World Bank estimates. However, the garment and footwear industry is expected to slow down in the near term. The sector’s export growth significantly dropped from 30%YOY in 2010 to 9.5%YOY in 2017, while the share of foreign investment in the industry declined from 28% in 2014 to only 4% in 2018. This was partly due to potential EBA loss from the EU, the Kingdom’s largest export destination.

Figure 3 : Generalized System of Preferences (GSP) from the EU

Source : EIC analysis based on data from European Parliamentary Research Service

Scheme Benefits Countries eligible for the scheme

Standard GSP Partial or full tariff exemption for 66% of total imports

Developing countries

GSP+ Tariff exemption for 66% of total im-ports

Vulnerable developing countries

EBA Tariff exemption for all imports except arms and ammunition

Least developed countries (LDCs)


How will loss of EBA affect Cambodia’s economy?Generally, the EBA scheme has no expiry date, but the European Commission can suspend the privilege under 3 conditions :

1) Suspension if the beneficiary country graduates from LDC status according to UN Committee for Development policy. 2) Suspension if the beneficiary country is involved in serious and systematic violations of human and labor rights under the UN Convention (Article 19). 3) Suspension by product if imports originating from the beneficiary country affect EU manufacturers and domestic markets.

Cambodia has not yet graduated from the UN’s LDC status, but the European Commission initiated its EBA withdrawal procedure in February 2019 in response to ongoing labor rights infringement in Cambodia. Another reason was the illegitimate general election in July 2018, with Prime Minister Hun Sen’s landslide victory transforming the country into a one-party state. Cambodia may end up losing EBA privilege from the EU in August 2020 if the government cannot make any significant progress in solving human rights violations within 18 months.

Cambodia’s government revised the economic growth forecast in 2020 downward from 7.1% to 6.5% in light of the EU potentially withdrawing the Kingdom’s EBA privilege. EBA removal will have a se-vere impact on Cambodia, since the country heavily relies on the EU economy. The EU is Cambodia’s largest export market, with a more than 40% share of total Cambodia’s exports. Cambodia is also the second-largest beneficiary of the EU’s EBA. The country’s major exports to the EU consist of garments (78% of total exports to the EU), footwear (13%), and bicycles (6%). If EBA withdrawal fully takes effect, these products will be subject to import tariffs of 12%, 16%, and 10%, respectively. This means that Cambodian exports will be subject to more than USD 700 million per year in tariffs, and this will lower their competitiveness compared to other regional exporters. Nonetheless, EBA withdrawal from the EU may help accelerate Cambodia’s economic reform under the Industrial Development Policy 2015-2025. The government targets structural reform by reducing the share of garment and footwear exports to 50% within 2025 and promoting new priority sectors. These new industries include the agricultural sector, high value-added manufacturing, and supporting industries such as import-substitution production and sec-tors that help diversify export products and integrate Cambodia’s industry into the regional value chain. Meanwhile, the tourism sector has become a new economic growth engine during the past 2-3 years as tourist arrivals and tourism revenue continue to increase. Tourism in Cambodia still presents promising growth opportunities thanks to numerous cultural attractions awaiting development, supported by many related sectors such as hotel, restaurant, travel agents, and ride services

Figure 4 : Process of EU EBA removal from Cambodia.

Source : EIC analysis based on data from European Parliamentary Research Service

February 2019 The EU launched procedures to withdraw EBA from

Cambodia.

August 2019 The EU completed its

evaluation of Cambodia.

November 2019The EU to conclude its

evaluation report on Cambodia.

February 2020The EU to announce a final

decision on whether or not to withdraw EBA from Cambodia.

August 2020 The EU might officially withdraw

EBA from Cambodia if the government does not make any progress in improving the labor and human rights situation.


Thai economy2019 and 2020

EIC has cut its Thai economic growth forecast to 2.8% in 2019, down from its previous 3.0% estimate. Prolonged slowdowns in the export sector dim economic growth with increasing spillover impact on other domestic sectors. Meanwhile, a fragile recovery is expected with anticipated 2.8% growth for 2020.

During the first half of 2019, the Thai economy grew by only 2.6%YOY, following weakened exports and private in-vestment figures in the second quarter. The number of tourist arrivals picked up after a tragic boat incident in 2018, although the sector was dragged down by baht appreciation, which directly reduced spending per tourist. Luckily, private consumption growth accelerated by 4.6%YOY due to stimulus packages issued during the 2nd quarter of 2019.

For the remainder of 2019, EIC anticipates a maintained sluggish economic growth rate, but with some upside from the low-base effect. As such, Thailand’s 2019 economic growth should stand at 2.8%. Key economic figures released for Quarter 3 of 2019 regarding durable goods consumption, real estate activities, and employment indicated that the amassed export sector contraction took a toll on other domestic sectors. Furthermore, a dimmed export growth outlook continues, as ongoing trade war tensions continue to cloud an export recovery. However, the Thai government’s eco-nomic stimulus packages implemented during the previous August should somewhat support the economy via improving private consumption. EIC hence foresees that the Monetary Policy Committee (MPC) will cut the policy interest rate once by 25 bps within 2019 based on current economic conditions and low inflation.

EIC expects that Thailand’s economic growth in 2020 should be on par with 2019 growth at 2.8%, in line with stabilized export outlooks but slowing private consumption and investment. In 2020, the global economy is viewed stabilizing, with export growth a mere 0.2% (under the assumption that the US will not announce any additional tariffs on Chinese imports). However, if the severity of trade war tensions becomes higher-than-anticipated, Thai export growth could drop by -1.8%, and in turn lower Thailand’s economic growth to 2.4%. Meanwhile, private investment figures should drop slightly from 2019, following a hazy export recovery and slowing real estate construction from stricter LTV measures. Similarly, private consumption growth is projected to stall from various suppressing factors, such as more stringent lending, weakening automotive purchases, and high household debt levels.

In 2020, EIC expects that the MPC will maintain policy rate from 2019 at 1.25%, an all-time-low level. The rate should be sustained as additional policy rate cuts amid the current weakening environment would have limited stimulus impact. Meanwhile, the strengthening baht momentum should continue from late 2019, and fluctuate in the range of 30-31 THB per USD. Thailand’s high current account surplus in comparison to other regional markets will continue to be the main supporting factor for sustained baht appreciation. As for inflation in 2020, EIC expects that the rate should remain at 0.8% following lower global crude oil prices as a result of weakened global economy

Outlook for Thai economyin 2019 and 2020as of Q4/2019

EIC revises down Thai economic growth2019 and 2020 to 2.8%

Key forecasts

Baht appreciation should be maintained due to Thailand's strong current account surplus

Weakened exports impact spreading to other domestic

economic sectors

Sluggish economic growth and low inflation could cause MPC to additionally cut

policy rates once more in 2019

GDP (%YOY)

previous forecast

Policy rate (end of year) Exchange rate (end of year) (USD/THB)

2.82020F

2.8(3.0)

2019F

1.25%2020F

1.252019F

30.0-31.02020F

30.3-30.82019F

Revised downward from previous forecastRevised upward from previous forecast

Private Consumption

• Weakened durable goods consumption growth momentum • Income growth decline following economic conditions• Stimulus measures could help boost non durable goods consumption

Private Investment

Government Consumption

• Growth at normal rates following disbursement of fixed current budget

Government Investment

• Lower than anticipated investment budget disbursement, hence growth forecast revised downward in 2019• Heightened capital injection via government construction projects in 2020 with higher growth than 2019

Exports of goods*

• 2019 growth revised downward due to escalated trade war tensions and strong baht• Slight growth expected in 2020 following a not-yet-recovered global economy and risks from the ongoing trade war

Tourist Arrivals

• The number of tourists remains the same, though with improving growth in 2019 due to the lower base from revised figures in 2018• Slower growth expected in 2020 following global economic conditions and strong baht

Imports of goods*


Key factors in 2019-2020

Headline inflation

• Lower crude oil prices causing inflation to be lower than previously anticipated in 2019• Meanwhile in 2020, low inflation rates are expected as crude oil prices should drop following global economic conditions

2019F 2020FUnit : %YOY

4.2

2.8

1.9

2.2

-2.5

5.1

-3.4

0.8

3.2

2.7

2.0

4.9

0.2

3.8

0.3

0.8

* Exports and imports in terms of USD (BOP basis)Source: EIC analysis as of October 8, 2019 based on data from NESDC, OAE, FPO, BOT, MOC, TAT, and Bloomberg

How will the trade war between China andthe US play out? And how will the US' automotive tariff increase conclude?

Growing business and household financial fragilityaccumulated from economic slowdown.

(2.9)

(-2.0)

(4.8)

(-2.9)

(0.9)

(3.4)

(2.0)

(4.5)

( )

• Export slowdown impacts investment in export-related businesses• Stricter credit approval will hamper investment in the business sector

Watch lists


EIC revises down Thai economic growth2019 and 2020 to 2.8%

Key forecasts

Baht appreciation should be maintained due to Thailand's strong current account surplus

Weakened exports impact spreading to other domestic

economic sectors

Sluggish economic growth and low inflation could cause MPC to additionally cut

policy rates once more in 2019

GDP (%YOY)

previous forecast

Policy rate (end of year) Exchange rate (end of year) (USD/THB)

2.82020F

2.8(3.0)

2019F

1.25%2020F

1.252019F

30.0-31.02020F

30.3-30.82019F

Revised downward from previous forecastRevised upward from previous forecast

Private Consumption

• Weakened durable goods consumption growth momentum • Income growth decline following economic conditions• Stimulus measures could help boost non durable goods consumption

Private Investment

Government Consumption

• Growth at normal rates following disbursement of fixed current budget

Government Investment

• Lower than anticipated investment budget disbursement, hence growth forecast revised downward in 2019• Heightened capital injection via government construction projects in 2020 with higher growth than 2019

Exports of goods*

• 2019 growth revised downward due to escalated trade war tensions and strong baht• Slight growth expected in 2020 following a not-yet-recovered global economy and risks from the ongoing trade war

Tourist Arrivals


Imports of goods*


Key factors in 2019-2020

Headline inflation

• Lower crude oil prices causing inflation to be lower than previously anticipated in 2019• Meanwhile in 2020, low inflation rates are expected as crude oil prices should drop following global economic conditions

2019F 2020FUnit : %YOY

4.2

2.8

1.9

2.2

-2.5

5.1

-3.4

0.8

3.2

2.7

2.0

4.9

0.2

3.8

0.3

0.8

* Exports and imports in terms of USD (BOP basis)Source: EIC analysis as of October 8, 2019 based on data from NESDC, OAE, FPO, BOT, MOC, TAT, and Bloomberg

How will the trade war between China andthe US play out? And how will the US' automotive tariff increase conclude?

Growing business and household financial fragilityaccumulated from economic slowdown.

(2.9)

(-2.0)

(4.8)

(-2.9)

(0.9)

(3.4)

(2.0)

(4.5)

( )

• Export slowdown impacts investment in export-related businesses• Stricter credit approval will hamper investment in the business sector

Watch lists

During the first 8 months of 2019, the value of Thai exports shrank by -3.3%YOY (excluding military arms and weapons returned to the US). Export growth to nearly all destinations weakened, except to the US, which grew by 4.6%YOY. Items that supported export growth to the US were rubber, automobiles and parts, semiconductors-transistors-diodes, machinery and parts, and radio-telegraph-telephone-television transmitters. Similarly, nearly all of Thailand’s 10 key export products shrank, except for rubber products that grew minutely by 1.1% (Figure 1)

Outlook for the Thai economy in 2019EIC has slashed its 2019 export growth forecast to -2.5% following weakening global economic growth and height-ened trade war tensions.

Figure 1 : The value of Thai exports during the first 8 months of 2019 shrank, both from key products and key export destinations

Source : EIC analysis based on data from the Ministry of Commerce and CEIC

Exports by products Exports by destinations

Unit : %YOY Unit : %YOY

Remarks : Analysis of export value, excluding military arms and weapons returned to the US after a drill in February 2019

(Share in 2018 total export) 2018 2019H1 Jul' 19 Aug’ 19 8M19

Total (ex. Weapon) 6.9% -4.4% 4.3% -4.0% -3.3%

Total (ex. Weapon & gold) 7.7% -5.3% -0.4% -9.8% -5.3%

ASEAN5 (15.5%) 13.4% -7.6% -11.2% -24.5% -10.6%

China (12.0%) 2.7% -9.7% 6.2% -2.7% -6.9%

CLMV (11.6%) 16.6% -0.9% -9.5% -22.8% -5.2%

USA (11.1%) 5.5% 3.5% 9.8% 5.8% 4.6%

Japan (9.9%) 13.0% -2.0% 8.0% -1.2% -0.8%

EU15 (9.0%) 5.0% -6.8% -2.4% -6.4% -6.3%

Hong Kong (5.0%) 1.8% -9.4% 4.7% -6.5% -7.5%

Australia (4.3%) 2.6% -10.9% 24.1% 18.9% -2.9%

Middle East (3.4%) -5.0% -7.6% 5.1% 5.0% -4.6%

India (3.0%) 17.8% 3.1% 7.3% -18.0% 0.7%

(Share in 2018 total export) 2018 2019H1 Jul' 19 Aug’ 19 8M19

Total (ex. Weapon) 6.9% -4.4% 4.3% -4.0% -3.3%

Total (ex. Weapon & gold) 7.7% -5.3% -0.4% -9.8% -5.3%

Electronics (15.2%) 4.4% -10.6% -4.4% -9.5% -9.7%

Auto & parts (14.9%) 7.0% -5.1% -2.9% -12.6% -5.8%

Electrical appliances (9.6%) 3.6% -0.6% 3.1% -6.9% -0.9%

Chemical & plastics (9.4%) 18.6% -9.4% -9.6% -17.2% -10.5%

Agriculture (9.2%) 1.1% -2.6% 3.3% -6.6% -2.4%

Agro (7.1%) 7.0% -1.7% -0.9% -1.5% -1.6%

Rubber products (4.4%) 7.5% 1.5% -0.3% -0.1% 1.1%

Machinery & parts (3.2%) 8.3% -12.1% -14.0% -2.2% -11.0%

Textile (4.4%) 6.6% -3.4% -2.0% -5.7% -3.5%

Iron & products (3.2%) 12.8% -9.4% -6.7% -10.8% -9.3%


Detailed analysis of the export sector revealed that during the first 8 months of 2019 key products with weakened growth were products that were part of China’s supply chain impacted by the trade war (Figure 2). Key products impacted were computer-parts and components, chemicals, electronic integrated circuits, and rubber. Meanwhile, fuel exports also contracted from lowered oil prices. Furthermore, sluggish economic growth further influenced decelerated exports of various other key products, such as automotive parts and components, plastic, machinery and parts, iron and steel, and rice.

Figure 2 : Key export items experiencing growth contraction during the first 8 months of 2019

Source : EIC analysis based on data from the Ministry of Commerce

*Remarks : Key products were characterized by their proportion to total export value belonging in the first 10th percentile (includes only products with growth contraction during the first 8 months of 2019).

However, various export products witnessed growth during the first 8 months of 2019 (Figure 3). Products that gained traction in Chinese market were cosmetics and fresh fruits such as durian and longan. Moreover, chicken meat exports to China significantly upped Thai export values, as China’s Department of Livestock Production inaugurated Thai chicken imports during early 2019 to serve the consumption demands of citizens in the southern regions of China. On the other hand, exports that gained growth traction in the US were, for example, tires (substituted goods for tires imported from China after the trade war tariff increments), apparel, and air conditioners and components.

Growth of foreign tourists’ number

Unit : %YOY Figure 2: Key export items experiencing growth contraction during the first 8 months of 2019

Key export items* (Share to total export in 2018)

Exporting markets (Ranked by contribution to contraction)

Total Rank 1 Rank 2 Rank 3 Rank 4 Rank 5

Automotive, parts and components (11.4%) -5.9%YOY Australia

(-18%YOY) Philippines

(-29.9%YOY) Indonesia

(-13.3%YOY) Chile

(-38.1%YOY) Turkey

(-56.6%YOY)

Computer, parts and components (7.8%)

-11.2%YOY US (-11.5%YOY)

Hong Kong (-16%YOY)

Malaysia (-28.5%YOY)

China (-15.1%YOY)

Netherlands (-17.9%YOY)

Primary plastics (4.1%) -10.7%YOY Vietnam (-16%YOY)

India (-18.1%YOY)

Japan (-13.9%YOY)

Indonesia (-12.2%YOY)

Australia (-25.5%YOY)

Refined fuel (3.7%) -15.9%YOY Singapore (-38.6%YOY)

Vietnam (-39.7%YOY)

China (-25.9%YOY)

Laos (-14.9%YOY)

Cambodia (-6.1%YOY)

Chemicals (3.6%) -14.6%YOY China (-30.4%YOY)

India (-17.3%YOY)


Taiwan (-29.6%YOY)

Belgium (-68.8%YOY)

Electronic integrated circuits (3.3%) -12.6%YOY China (-28.3%YOY)

Hong Kong (-13.8%YOY)

US (-30.6%YOY)

Germany (-21.3%YOY)

Taiwan (-14.6%YOY)

Machinery and parts (3.2%) -11%YOY Indonesia (-33.8%YOY)

China (-31.8%YOY)

Netherlands (-25%YOY)


Myanmar (-23.8%YOY)

Iron and steel (2.5%) -9.3%YOY Malaysia (-24.7%YOY)

Bangladesh (-57.8%YOY)

China (-25.8%YOY)

Philippines (-22.3%YOY)

Italy (-48.5%YOY)

Rice (2.2%) -22.6%YOY Indonesia (-91.6%YOY)

Philippines (-60.6%YOY)

China (-41.6%YOY)


Ghana (-61%YOY)

Spark-ignition reciprocating internal combustion (2.1%)

-19.9%YOY Singapore (-58%YOY)

Hong Kong (-63.3%YOY)

UK (-65.8%YOY)



Rubber (1.8%) -7.6%YOY China (-13.1%YOY)


India (-34.1%YOY)

Laos (-87.1%YOY)

S. Korea (-10.5%YOY)

*Remarks: Key products were characterized by their proportion to total export value belonging in the first 10th percentile (includes only products with growth contraction during the first 8 months of 2019).

Source: EIC analysis based on data from the Ministry of Commerce


Figure 3 : Key products with positive growth during the first 8 months of 2019

Source : EIC analysis based on data from the Ministry of Commerce

EIC downwardly revises its 2019 export growth forecast to a -2.5% from the previous estimate of -2.0%, following previous export contraction (excluding gold) since early 2019. Furthermore, factors that continue to suppress the global economy and Thailand’s trade partners include :

• Growing trade war tension between the US and China. On September 1, 2019, the US levied additional import taxes worth USD 104 billion on Chinese goods, which will face rates of 15% from the previous 10%. China then immediately retaliated with tariff increases worth USD 75 billion, an increase of 5-10%. Besides, the US could impose two additional rounds of duty hikes, the first on October 15, 2019 with anticipated import duties worth USD 250 billion from lifting duty rates from 25% to 30% on selected products and a second on December 15, 2019 with anticipated import duties worth USD 156 billion from lifting duty rates from 10% to 15% on selected products.

• Protests in Hong Kong could slow Thai exports to Hong Kong. Protests in Hong Kong initiated during the late second quarter of 2019 caused Hong Kong economic growth to decelerate by -0.4%QoQ_sa. The protests continue to linger, and result in a 40%YOY drop of foreign tourist arrivals in Hong Kong during August, significantly impacting the economy as the tourism sector accounts for 19.2% of Hong Kong’s GDP. Hong Kong’s economy is therefore anticipated to be continually hampered by the protests. Thailand’s economy will be indirectly impacted by the protests via exports to Hong Kong, with the five key import products that might be most affected are automobiles- parts and components, computers and parts, jewelry, chemicals and plastic, and rubber products.

*Remarks : Key products were characterized by their proportion to total export value belonging in the first 10th percentile (includes only products with positive growth during the first 8 months of 2019).

Figure 3: Key products with positive growth during the first 8 months of 2019

Key export items * (Share to total export in 2018)

Exporting markets (Ranked by Contribution to growth)

Total Rank 1 Rank 2 Rank 3 Rank 4 Rank 5

Tires (2.0%) 15.3%YOY US (28.8%YOY)

S. Korea (118.6%YOY)

Saudi Arabia (91.6%YOY)

Australia (13.2%YOY)

Netherlands (51.7%YOY)

Air conditioners (1.8%) 2.2%YOY US (46.8%YOY)

Japan (31.5%YOY)

Germany (48.1%YOY)

S. Korea (19.1%YOY)

France (12.9%YOY)

Chicken (1.2%) 8.3%YOY China (642.4%YOY)

S. Korea (48.2%YOY)

Japan (2.6%YOY)

UK (5.6%YOY)

Malaysia (14.4%YOY)

Cosmetics (1.2%) 11.2%YOY Taiwan (212.3%YOY)

China (25.6%YOY)

India (89.9%YOY)

Cambodia (15.5%YOY)

Austria (43%YOY)

Prepared or preserved seafoods (1.2%) 0.6%YOY US

(16.8%YOY) Libya

(116.8%YOY) Japan

(9.1%YOY) Peru

(49.4%YOY) Saudi Arabia (11.6%YOY)

Radio-broadcast and TV receivers and parts (1.1%)

11.6%YOY Japan (61.3%YOY)

China (59.8%YOY)

US (5.1%YOY)

Mexico (82%YOY)

France (85.7%YOY)

Fruits (1.1%) 45.4%YOY China (105.9%YOY)

Hong Kong (28.6%YOY)

Indonesia (44.4%YOY)

Vietnam (1.4%YOY)

US (13%YOY)

Apparel (1.0%) 3.5%YOY US (8.6%YOY)

China (28.6%YOY)

Germany (20.9%YOY)

UK (15.4%YOY)

S. Korea (21.5%YOY)

*Remarks: Key products were characterized by their proportion to total export value belonging in the first 10th percentile (includes only products with positive growth during the first 8 months of 2019).

Source: EIC analysis based on data from the Ministry of Commerce


Figure 4 : During the first 8 months of 2019, the number of foreign tourist arrivals from various key destinations improved, except for Thailand’s largest market, China.

Source : EIC analysis based on information from the Ministry of Tourism and Sports and CEIC

Growth of foreign tourists’ number

• Conflicts between Japan and South Korea could induce economic retaliation. These conflicts have significant economic implications to both markets as the pair have high trade dependency (South Korea is Japan’s 3rd largest export destination with a 7.1% share of total Japanese exports, while Japan is South Korea’s 5th largest export destination with a 5.1% share of total Korean exports). Both countries are key Thai trade partners (Japan is Thailand’s 3rd largest export market while South Korea is Thailand’s 15th largest export market), and economic slowdowns in the two countries could further harm Thai exports in the period ahead.

• Furthermore, the US plans to increase automotive import tariffs from all origins to 25%. The US is currently negotiating with the EU and Japan regarding the tariff increment, for which a conclusion should be reached by November. If the US tariff increase becomes reality, the global economy could slow by more than previously estimated. Germany and Japan will be especially hurt as they are the leading global automotive manufacturers in the US.

EIC expects the number of foreign tourist arrivals in 2019 will amount to 40.1 million persons, picking up during the second half of 2019 benefiting from the previous year’s low base and conflicts in various regional countries. However, the baht appreciation will have a direct impact on tourist expenses.

During the first 8 months of 2019, foreign tourist arrivals amounted to 26.6 million persons, representing a growth rate of 2.8%YOY (Figure 4). Solid tourist growth from various key destinations was witnessed during the first 8 months of 2019. For example, from ASEAN (5.8%YOY), South Korea (4.6%YOY), Japan (9.9%YOY), and India with growth as high as 25.4%YOY. On the other hand, European tourist growth dropped by -1.9%YOY due to a sluggish European economy. Similarly, Chinese tourist arrivals contracted by -0.8%YOY due to ongoing trade war tensions. Luckily, the number of Chinese tourist arrivals started recovering from the low base effect in the previous year after the Phuket boat accident. The number of Chinese tourist arrivals reverted to growth in July and August at 5.8%YOY and 18.9%YOY, respectively, after contracting for 5 consecutive months. However, the recovery still needs to be monitored.

Unit : %YOY, In () is % of total foreign tourism share in the first 8 months in 2019

Chinese tourist growth recovery after the boat accident was considered slow, especially when compared to prior incidents that impacted Chinese tourist arrivals (Figure 5). Previous incidents such as the bombing at the Erawan shrine in August 2015 and the zero-dollar tour ban in September 2016 slowed Chinese tourist arrival growth, though recovery was faster. The comparatively slower recovery this year could be partly explained by sluggish Chinese economic growth, as a result of the US-China trade war.

9.3

14.3

7.6

1.6

15.212.6

5.7

10.4 10.57.5 7.4

3.9

16.9

12.8

5.17.2 6.3 6.3

2.8

-0.8 -1.9

7.5

25.4

4.6

9.9

4.83.2

-5

0

5

10

15

20

25

30

Total Chinese(28.8%)

Malaysian(9.5%)

South Korean(4.6%)

Japanese(4.4%)

European(19.4%)

US (3%) Indian (4.7%) Others (25.6%)

Average of 2016 to H1-2018 H2-2018 8M-2019


Figure 5 : Chinese tourist growth recovery after the boat accident was considered slow, especially when compared to prior incidents

Source : EIC analysis based on information from the Ministry of Tourism and Sports and CEIC

Chinese tourists’ growth rate compared to the previous month, seasonally adjusted

Unit : %MOM SA

EIC estimates the total number of tourist arrivals in 2019 will be 40.1 million persons, representing a 5.1% growth. During the second half of 2019, Chinese tourist arrivals should grow by satisfactory rates due to the low-base effect. Meanwhile, the growth momentum of Japanese, South Korean, and Indian tourist arriv-als should continue. Furthermore, the tourism sector will also benefit from the tensions developing in other markets, such as the protests in Hong Kong, conflicts between China and Taiwan, with China not allowing Chinese tourists to freely travel to Taiwan (except via licensed travel agents), and conflicts between Japan and South Korea. For this reason, Chinese, Japanese, and South Korean tourists might choose Thailand as a substitute destination for travelling.

Despite growing tourist arrival figures, spending per tourist contracted due to weakening global economic growth and baht appreciation (Figure 6). Foreign tourist spending analysis revealed that the drop in total spending was due to lower spending per tourist following global economic slowdowns and appreciation of the baht.

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

t-4 t-3 t-2 t-1 0 t+1 t+2 t+3 t+4

Bombing at the Erawan shrine (Aug 15) Zero-dollar tour crackdown (Sep 16) Phuket Incident (Jul 18)


Continually slowing exports weakened private consumption and slowed employment, but stimulus packages could help support waning purchasing power.

During the first half of 2019, private consumption saw a 4.6%YOY boost from economic stimulus packages. Durable goods consumption grew by a satisfactory 5.6%YOY, though slower than the second half of 2018, which grew by as much as 10.8%YOY. Meanwhile, non-durable goods continued to grow at 4.5%YOY, from the support of the welfare card economic stimulus scheme during early 2019. Welfare cardholders were entitled to receive 500 baht each, in addition to utilities and other payments support. Furthermore, during mid-2019, specific groups of welfare cardholders received incremental support worth THB 132 billion.

Farm and non-farm incomes continued to rise, though employment rates, especially in the industrial sector, declined as a result of the waning exports. According to Figure 7, farm incomes gradually increased, following heightened agricultural product prices. Similarly, non-farm incomes rose throughout the past two quarters, though growth dropped to 0% in August 2019. On the flip side, overall employment rates started to slow since early 2019 (Figure 8), with August figures dropping by -1.7%YOY. Employment in the industrial sector contracted since the 2nd quarter, with the latest figures in August pointing to a -6.4%YOY contraction in accordance with lower export product production. As for farm employment, figures shrank since early 2019 because of a drought. Meanwhile service sector employment shrank by -1.0%YOY in August following weakened Thai economic growth.

Figure 6 : Despite growth in tourist arrival figures, total spending dropped due to baht appreciation

Source : EIC analysis based on data from the Ministry of Tourism and Sports, the Bank of Thailand, and CEIC

Tourism revenue, number of tourists, and per capita spending

Unit : %YOY

Foreign exchange & growth of spending per head

Unit : %YOY

-5

0

5

10

15

20

25

30

Jan-

17M

ar-1

7M

ay-1

7Ju

l-17

Sep-

17Nov

-17

Jan-

18M

ar-1

8M

ay-1

8Ju

l-18

Sep-

18Nov

-18

Jan-

19M

ar-1

9M

ay-1

9Ju

l-19

Foreign tourist arrivalsPer capita spendingTourism revenue

-15%-10%-5%0%5%

10%15%

Spending per head growth THBCNY

-15%-10%-5%0%5%

10%15%20%

Jan-

17Fe

b-17

Mar

-17

Apr-1

7M

ay-1

7Ju

n-17

Jul-1

7Au

g-17

Sep-

17O

ct-1

7No

v-17

Dec-

17Ja

n-18

Feb-

18M

ar-1

8Ap

r-18

May

-18

Jun-

18Ju

l-18

Aug-

18Se

p-18

Oct

-18

Nov-

18De

c-18

Jan-

19Fe

b-19

Mar

-19

Apr-1

9M

ay-1

9Ju

n-19

Jul-1

9

Spending per head growth THBEUR

appreciation

depreciation

appreciation

depreciation


Figure 7 : Farm incomes continued to increase, while non-farm incomes slowed

Figure 8 : Employment should slow following sluggish economic growth, especially in the industrial sector, which was hampered by continually shrinking export figures

Farm income, agricultural production and price Non-farm wage

Employment by sector

Unit : %YOY Unit : THB/month, seasonally adjusted (LHS), %YOY (RHS)

Unit : %YOY, 3MMA (Moving-Average)

Source : EIC analysis based on data from the Office of Agricultural Economics and the Bank of Thailand

Source : EIC analysis based on data from the National Statistical Office

0.0% 0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

14,200

14,400

14,600

14,800

15,000

15,200

15,400

15,600

Jun-

18Ju

l-18

Aug-

18Se

p-18

Oct

-18

Nov

-18

Dec-

18Ja

n-19

Feb-

19M

ar-1

9Ap

r-19

May

-19

Jun-

19Ju

l-19

Aug-

19

8%

14%10%

0%

4%

-3%

6%

2%0%

-6%

-4%

-1%

6%

2% 3%

-10%

-5%

0%

5%

10%

15%

20%

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Oct

-18

Nov

-18

Dec-

18

Jan-

19

Feb-

19

Mar

-19

Apr-1

9

May

-19

Jun-

19

Jul-1

9

Aug-

19

Production Price Farm Income

-4

-3

-2

-1

0

1

2

3

4

5

6

Jan-1

8Feb-1

8

Mar-18

Apr-1

8

May-18

Jun-1

8Jul-1

8

Aug-1

8

Sep-1

8Oc

t-18

Nov-1

8

Dec-1

8Jan-1

9Feb-1

9

Mar-19

Apr-1

9

May-19

Jun-1

9Jul-1

9

Aug-1

9

Manufacturing

Total employment

Services

Agriculture


Figure 9 : Car sales should decelerate due to the high base in the previous yearDomestic car sales

Unit : Number of cars (LHS), %YOY (RHS)

Source : EIC analysis based on data from Toyota and the Federation of Thai Industries

During the remainder of 2019, durable goods consumption should slow, particularly automotive sales from slowing loan growth and a high base in the previous year. Automotive sales drastically grew from 2017 to 2018 (13.4% and 19.5% growth, respectively) as the first-car policy that withheld ownership transfers for 5 years expired, in addition to recovering automotive loan growth. Automotive sales momentum has therefore stalled since early 2019 (Figure 9), and during the remainder of 2019 contractions in automotive sales could occur and pressure durable goods consumption for the remaining period.

Going forward in 2019, the stimulus measures announced during late August 2019 will be the main support for non-durable goods consumption. EIC believes that private consumption will expand by 4.2% in 2019. The potential decline in durable goods consumption and weakening employment due to sluggish exports should be offset by government economic stimulus packages worth THB 300 billion (Figure 10). The package was issued in August 2019, directly targeting increasing citizen’s purchasing power, especially through the money transfer scheme (Measures 1 and 2). However, the majority (roughly two thirds of the whole package worth) was allocated for soft loans, which EIC believes will have limited economic impact. Part of the allocated budget for loans might not act as an additional stimulus as it could overlap with existing business as usual loans. Moreover, the loans could be used for refinancing, which would barely induce new spending or investment. Limitations from other related policies also impact loan issuance, for example from the LTV measure that some-what lowers mortgage policy effectiveness. All in all, EIC expects that the economic stimulus packages will uplift Thailand’s economy by 0.3 percentage points.

Remarks : The term automotive includes passenger cars and commercial vehicles

-7%-10%

-5%

0%

5%

10%

15%

20%

25%

30%

0

20,000

40,000

60,000

80,000

100,000

120,000


Figure 10 : Summary of economic stimulus measures approved by the cabinet in AugustFigure 10: Summary of economic stimulus measures approved by the cabinet in August

Measures Details Budget (million baht) Duration

1) Direct money transfer

1.1) Assistance for farmers affected by drought

Support in-season rice cultivation costs

Support of THB 500 per rai with maximum 20 rais

25,482 19/20 harvesting season

Alleviate drought and flooding impact within the province

Reserve money for emergency needs in 74 provinces (THB 200 million each), except for Surin and Buriram (THB 500 million each)

15,800 Starting Sep. 2019

1.2) Assistance for low income earners

For welfare cardholders Additional THB 500/ month/ person

20,102 Aug. – Sep. 2019 For elderly welfare cardholders

Additional THB 500/ month/ person for those with age over 60

For childcare THB 300/ month/ person support for child ages under 6 years old

1.3) Income guarantee

Income guarantee for rice farmers for the 2019/20 harvesting period

• Hom Mali rice paddy: THB 15,000/ton, capped at 14 tons per household

• Provincial Hom Mali rice paddy: THB 14,000/ ton, capped at 16 tons per household

• White rice paddy: THB 10,000/ ton, capped at 30 tons per household

• Fragrant Pathum Thani rice paddy: THB 11,000/ ton, capped at 25 tons per household

• Glutinous rice paddy: THB 12,000/ ton, capped at 16 tons per household

21,496 Oct. 2019 - May 2020

Income guarantee for oil palm farmers for the 2019/20 harvesting period

Maximum 25 rais per household at reference price of THB 4/ kg.

13,379 Aug. 2019 – Sep. 2020

2) Support for tourism stimulus

VOA extension Visa on Arrival extension Until Apr. 2020

Chim-Shop-Chai (Eat-Shop-Spend)

Disburse THB 1,000 per person for traveling capped at the first 10 million to register

10,000 27 Sep. - 30 Nov. 2019

15% cash back from actual spending but not over THB 4,500 (total spending not exceeding THB 30,000)

9,094

THB


Source : EIC analysis based on data from cabinet resolutions, the Ministry of Finance, and news agencies

Measures Details Budget (million baht) Duration

3) Soft Loans

3.1) Assistance for farmers affected by drought

Emergency loans THB 50,000/ person, with no interest during the first year


Drought relief loans THB 500,000/ person 5,000 Starting Sep. 2019

3.2) Assistance for housing

Low-interest mortgage Via the Government Savings Bank (GSB) and the Government Housing Bank (GHB)


3.3) Assistance for SMEs

Soft loans for micro SMEs Additional budget for the OSMEP fund for low-interest loans (1% per year)


Soft loans for SMEs

Loans via GSB and Krung Thai Bank with interest starting at 4% per year


Credit guarantee (PGS8) by the Thai Credit Guarantee Corporation


Grand Total 332,353 (Exclude PGS)

Source: Compiled by EIC based on data from cabinet resolutions, the Ministry of Finance, and

news agencies

THB


Average inflation for 2019 should stand at 0.8% due to low core inflation and oil prices.

Headline inflation during the first 9 months of 2019 increased to 0.8%, mainly from an acceleration in fresh food prices (Figure 11). Fresh food prices jumped at the beginning of 2019 as a drought induced a fresh food supply shortage. However, headline inflation merely increased from counteracting energy price reductions from lower oil prices. Meanwhile, core inflation stood at low levels as well, reflecting an overall slowdown in the Thai economy.

EIC is cutting its headline inflation forecast in 2019 to 0.8% from a previous 0.9%, following lower-than-ex-pected crude oil prices (see more at Bull-Bear). In addition, prolonged low core inflation rates further influenced lower-than-expected headline inflation.

Figure 11 : Inflation rates increased following fresh food prices during the first 9 months of 2019. But in 2019 and 2020 inflation is expected to continue to be lower than 1%

Contribution to Headline inflation

Unit : %

Source : EIC analysis based on data from MOC

2.2%1.9%

-0.9%

0.2%

0.7%1.1% 0.8% 0.8% 0.8%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

2013 2014 2015 2016 2017 2018 9M2019 2019f 2020f

Core Inflation Raw Food Energy Headline Inflation


Fragile global economic conditions from receding global trade could drive various economies into a technical recession1 , with Singapore and Germany among those at risk. The ongoing trade war could pose a significant risk to Thailand’s export sector in 2020. EIC assumes that in the base case, the US will not levy additional tariff increments on Chinese imports in 2020, which will enable Thai exports to slightly improve by 0.2%. However, if additional import taxes are announced, export growth could be lower-than-expected (see more at Box : Scenario analysis for 2020 economic growth).

Thai economic outlook for 2020EIC foresees a prolonged gloomy exports, though with some upside from a low-base.

1 Technical recession is defined by 2 consecutive GDP %QOQ SA growth reductions


Scenario analysis for 2020 economic growth

Figure 12 : Trade war assumptions under various severity scenarios with impacts on the economy

Source : EIC analysis

2019F

2020F

Base WorseTechnical Recession

External shock

Domestic shock

Assumptions

Trade war severity (US import tariff imposed on Chinese goods)

Chinese imports worth USD 250 bn

30% (Oct.) 30% 30% 30% 30%


15% (Sep.) 15% 25% 25% 15%


15% (Dec.) 15% 25% 25% 15%

Number of tourist arrivals

40.1 million 41.6 million 41.2 million (-400,000)

41.2 million (-400,000)

41.6 million

Impact on the Thai economy

Real GDP 2.8% 2.8% 2.4% 2.0% 2.0%

Value of exports

(USD)

-2.5% 0.2% -1.8% -3.6% 0.2%

Private consumption 4.2% 3.2% 3.7% 2.8% 1.1%

Private investment 2.8% 2.7% 1.5% 1.0% -1.5%

Policy interest rate 1.25% 1.25% 1.25% 1.00% 1.00%

Number of touristarrivals


High trade war uncertainty remains, with a significant impact on Thailand’s export sector growth in 2020. EIC hence conducted a sentiment analysis regarding trade war impacts on the Thai economy (Figure 12). The assumption used in the base case was that the US will not levy additional import tariffs from 2019, which was the main assumption used for this round of economic forecast. However, the possibility of more severe trade war tensions remained. In a worse-case scenario, EIC modeled the US imposing additional tariffs worth USD 104 billion and USD 156 billion on Chinese imports, thereby raising tariffs to 25% from the previous 15%. Thai export growth would then drop by -1.8% under this scenario. Furthermore, the trade war impact could spread to Thailand’s tourism sector and reduce the number of tourist arrivals by 400,000 from sluggish global economic growth, and hence cut GDP growth to 2.4%. Under the worse-case scenario, EIC assumes that the government will initiate additional stimulus packages similar to the money transfer scheme, which should uplift private consumption growth from the base case scenario.

Another scenario is the study about Thailand entering a technical recession, which will have only 2% economic growth. The technical recession could occur from two of the following environments :

1) External shock – Exacerbated slowdown in the global economy from, for instance, a prolonged trade war that could trigger various economies entering into recession, in addition to inducing fear and lowering trade and private investment. Thai exports would also be hit and could reduce growth by as much as -3.6%, leading Thailand to follow other countries into a recession.

2) Domestic shock – In this scenario, the severity of external shocks on exports and tourism remain at the same level as in the base case. However, worsening figures from domestic factors such as the buildup impact from prolonged export sector contractions, strict Loan to Value (LTV) measures that dwarf the real estate sector, and the potential announcement of a debt service ratio measure (DSR limit) in 2020 would hurt the economy. Furthermore, the government could find itself in a position where additional stimulus measures are prohibited. Private consumption growth could therefore stall at only 1.2% growth while private investment drops by -1.4%, eventually leading Thailand into a recession.

Under the technical recession scenario, Thailand’s economic growth could be under 2%, depending on the severity of any external and domestic shocks on the Thai economy


EIC sees the number of tourist arrivals slowing following sluggish global economic growth and ongoing strengthening baht.

EIC expects the number of foreign tourist arrivals to be 41.6 million, representing a slower growth rate of 3.8%, following shrinking global economic growth. Meanwhile, relative baht appreciation also suppresses growth. Another factor to consider is that Japan is hosting its Tokyo Olympic 2020 event next year, which should draw significant numbers of foreign tourists to Japan during the second half of 2020.

Private consumption growth will slow to 3.2%, following sluggish economic growth, in addition to weakened durable goods consumption arising from bank loan deceleration. In 2020, overall economic figures should gradually improve, though with high downside risks from heightened trade war tensions. As such, private consumption growth should stall. Moreover, consumption uplifts from the economic stimulus packages in 2019 will start to fade. For this reason, private consumption growth in 2020 could be lower than in 2019. Stricter loan approvals amid feeble economic conditions in addition to some government measures could dictate durable goods consumption growth in 2020. According to EIC study (Figure 13), commercial bank loans (year-on-year growth) were highly correlated with durable goods consumption, as most goods were bought via installments that required bank loans. This factor, therefore, reflects continuing economic fragility amid ongoing suppression from the trade war. EIC believes that in 2020 commercial banks will be even more prudent regard-ing loan approvals. At the same time, the Bank of Thailand is likely to issue additional measures to control the debt service ratio limit. As a result, consumer loan approvals will be increasingly stringent due to Thailand’s high household debt environment limitation.

Figure 13 : Weakened loan growth significantly slowed durable goods consumptionCommercial bank loans, and durable goods consumption

Unit : %YOY

Source : EIC analysis based on data from the BOT and NESDB

Remarks : Commercial bank loans excluded interbank loans.

-10

-5

0

5

10

15

20

25

Q1/

2015

Q2/

2015

Q3/

2015

Q4/

2015

Q1/

2016

Q2/

2016

Q3/

2016

Q4/

2016

Q1/

2017

Q2/

2017

Q3/

2017

Q4/

2017

Q1/

2018

Q2/

2018

Q3/

2018

Q4/

2018

Q1/

2019

Q2/

2019

Outstanding loans for purchase or hire purchase of cars and motorcycles. Durable Consumption


However, additional government stimulus packages are possible in 2020, which would benefit private con-sumption. According to the latest cabinet resolution, the budget for fiscal year 2020 called for a total expenditure of THB 3.2 trillion, of which deficits accounted for THB 469 billion (approximately 2.9% of GDP). Relevant laws regarding the debt ceiling state that the government can borrow money worth THB 710 billion2 to finance budget deficits, indicating additional room of THB 240 billion (approximately 1.5% of GDP) for stimulus measures. Stimulus measures could be issued as a Mid-year Supplementary Budget Expenditure Act, though time constraints lingering since the establishment of the 2020 budget represent a huge caveat. Stimulus measures could also be issued as a royal decree similar to the Thai Khem Kaeng measure during 2008-2009, when Thailand was severely impacted by the global financial crisis. However, establishing a royal decree requires importance and urgency and the current situation might not qualify. But if stimulus packages are established, they could be categorized according to the 5 categories seen in Figure 14. Stimulus issuance will boost private consumption and increase Thailand’s GDP by more than previously anticipated. Apart from economic stimulus packages, the government could re-introduce policies that were promoted during the election. An important policy that EIC conducted additional analysis on was the lifting of the minimum wage to THB 400/ day (see more at Note : Minimum wage hikes … weighing of short-term purchasing power increment vs. risks and burden on small businesses).

Figure 14 : Past economic stimulus measures and potential implementation in 2020

Economic stimulus measures

DetailPotential Implementation

High Mid Low

1) Policy to assist low-income individuals

1.1) State welfare card

Monthly money transfers to low-income indi-viduals to support traveling and consumption expenses, in addition to occasional payments for short term economic stimulus

©§

2) Policy to assist farmers

2.1) Income guar-antee

Income support equivalent to the spread be-tween an agricultural product’s market price and the government’s established price to aid farmers during a low agricultural price environ-ment

2.2) Pledging price higher than market price

The government buys products from farmers at a pledging price that is higher than the market price

2.3) Farmer debt relief

Farmer debt suspension for a limited period

2.4) Drought allevia-tion support

Support for farmers impacted by drought via cash injection or low-interest loans

3) Policy to assist SMEs

3.1) Low-interest loans

Low-interest loans to SMEs (soft loans)

3.2) Credit guaran-tee (PGS)

TCG will help guarantee SME loans, enabling SMEs to receive higher credit limits from banks

2 Loans to finance budget deficits cannot exceed 20% of total budget expenditures (THB 3.2 trillion), plus 80% of principal loan repayments (estimated budget of THB 90 billion).Economic Intelligence Center (EIC) 49

Source : EIC analysis based on data from news agencies, the Ministry of Finance, and the Revenue Department

Private investment growth should gradually improve despite weakened exports due to support from investments in public infrastructure projects.

Public sector investment should grow by a satisfactory 8.0% and will influence 2.7% growth in private investment. EIC foresees public investment continuing to expand, especially road construction and maintenance, SkyTrain Orange Line development, dual-track trains, and motorways. However, suppressing factors remain, including weakened exports and slowing private construction due to real estate market conditions. The number of residential pre-sale units from the top seven developers saw a drastic decline to -20.9% during the first half of 2019. Furthermore, permitted construction areas also dropped (Figure 15) and will dictate private construction conditions in 2020. Other factors to monitor and consider are the trade relocation of various factories aiming to evade trade war tariffs. If such relocations occur, Thailand’s investment and export outlooks could be boosted (see more at Box : Capability analysis, battle to win foreign invest-ment into Thailand versus regional competitors).

Economic stimulus measures

DetailPotential Implementation

High Mid Low

4) Policy to boost domestic spending

4.1) Domestic traveling

Tax deductions or money support to boost domestic tourism in both first and second-tier provinces

4.2) Shop Chuay Chart

Tax deductions to support spending during a given period (historically at the end of the year)

4.3) Tourist Visa on Arrival exemption

Short-term visa exemption for tourists of select-ed nationalities to stimulate domestic tourism

5) Public spending policy

5.1) Accelerated dis-bursement

Accelerated local and state-owned enterprise budget disbursement to expedite capital injec-tion into the economy

5.2) Village fund Budget allocation for villages to support small investments such as repairing roads and con-structing dams. An example is the 500,000 baht per village project

5.3) Money injection into local economies

Budget allocation via the Ministry of Interior, whereby locals must propose a project for community development to receive funds. An example is the 5 million baht per sub-district project


Figure 15 : Pre-sales of residential units from the top seven developers, facing pressure from a slow-down in permitted construction areas, hence pressuring the private construction sector in 20207 Major real estate companies’ pre-sales Construction Area Permitted (9MMA)

Unit : Unit

Unit : %

Unit : %YOY

Source : EIC analysis based on data from SET, SCBS, and BOT

Remarks : Top Seven developers include AP, LH, LPN, PSH, QH, SIRI, and SPALI

180,990 170,396

218,097 228,805

112,290 88,874

50,000

100,000

150,000

200,000

250,000

14.6

-5.9

28.04.9 11.4

-20.9-30-15

01530

2015 2016 2017 2018 2018H1 2019H1

-8.6%

-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

Jan-

18Fe

b-18

Mar

-18

Apr-18

May

-18

Jun-

18Ju

l-18

Aug-

18Se

p-18

Oct

-18

Nov

-18

Dec-

18Ja

n-19

Feb-

19M

ar-1

9Ap

r-19

May

-19

Jun-

19Ju

l-19

Aug-

19

Inflation should stand at 0.8% following declining oil prices as per global market conditions. In 2020, the average crude oil price should be lower than in 2019 (see more at Bull-Bear). As such, price pressure from ener-gy-related items should decline. Meanwhile, core inflation should rise slowly following Thailand’s gradual economic recovery


Capability analysis, battle to win foreign investment into Thailand versus regional competitors

The current US-China trade war, which began during the second half of 2018, caused companies with manufacturing bases in China to suffer competitive advantage declines in the US market due to increased import tariffs. This ongoing situation motivated various companies to consider man-ufacturing base relocations from China to evade high import taxes. ASEAN will be an attractive target for factory relocations due to its proximity to China, in addition to its manufacturing and exporting skills readiness. According to the latest investment approval figures from the BOI, growth of 18.5% was witnessed during the first half of 2019, in addition to soaring growth of 59.3% in 2018 (Figure 16). The high growth rate indicated that investors saw Thailand as a potential relocation target. However, as there is no investment period limit set after receiving BOI approval, factory relocation investment applications might not yet be realized. This is reflected in a contraction in BOT foreign direct investment inflow figures contracting by -5.8% during the first two quarters of 2019.

Figure 16 : Though the value of BOI-approved foreign investment grew significantly, actual FDI figures showed the opposite The value of investments approved by the BOI and the value of foreign direct investments

Unit : %YOY

Source : EIC analysis based on data from BOI and BOT

-26.1%

5.6%

0.9%

-49.7%

59.3%

18.5%

-19.7% -16.2%

7.1%

-5.1%4.7%

-5.8%

2014 2015 2016 2017 2018 6M2019

BOI FDI : Inflow


As a result, Thailand must proactively attract foreign investment during this golden opportunity. The government is already laying better fundamentals to attract foreign investment via launching its Thai-land Plus incentives, a stimulus to lure foreign funds, in addition to promoting human capital development in Thai companies during early September. Details of the new government promotional privileges include : • Companies will be eligible for an additional 5 years of 50 percent corporate income tax deduction, from the maximum of 8 years as per normal regulations, provided that the project invests at least THB 1 billion before 2021. • Establishment of a steering committee offering one-stop-service investment facilitation to address issues that could delay investments. • Companies can use invested capital or training expenses relating to advanced technology as an additional tax exemption expense for 2019-2020. • Amendment of the Foreign Business Act and other relating regulations that hinder and restrict investment in target industries. • Assign the Industrial Estate Authority of Thailand to prepare or develop suitable land plots to support each country’s foreign investments, such as South Korea, China, and Taiwan. • Revive Thailand-EU free trade agreements, as well as joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in 2019. • Companies that invest in automation systems, especially to boost manufacturing processes, can receive additional corporate income tax reduction in 2019-2020.

Studies have revealed that various factors influence foreign investors’ investment decisions, so EIC therefore compared Thailand’s competitiveness in these relevant factors to key regional competitors such as Vietnam, Philippines, Indonesia, and Malaysia and arrived at the following conclusions (Figure 17).

1) Tax incentives – Thailand offers the lowest corporate income tax rate at 20%, roughly equivalent to Vietnam’s rate. Additionally, the government launched measures to attract foreign investment via providing special investment privileges for promoted industries, such as tax holidays and tax deductions. However, to accurately calculate tax rates, EIC referenced the Effective Average tax rate (EATR) calculation and found that Thailand and Vietnam’s effective tax rates remained on par and were the lowest among the countries in the study.

2) Infrastructure – Thailand ranked second in the World Bank’s infrastructure quality index, with scores close to first-ranked Malaysia.


3) Labor productivity – Thailand ranked second in terms of labor productivity, following only by Malaysia. Labor productivity in this study was calculated according to the output of one worker using the World Bank’s GDP Per Person Employed, Constant 2011 PPP $.

4) Ease of doing business – The World Bank’s ease of doing business index ranked Thailand at 27th place globally, or 2nd place among the countries previously mentioned, second only to Malaysia, which was ranked at 15th place globally and 1st place among the countries in the study. The ease of doing business index reflected business accessibility, including the facilitation of business establishment, business operations, costs and operating expenses, and regulatory environment.

5) Market share of world exports – The mentioned market share reflected the countries’ export market competitiveness. Higher export competitiveness meant higher interest of foreign investment. According to information from 2018, the country in the study with the highest export market share was Vietnam at 1.5%, followed by a tie between Thailand and Malaysia for a 1.3% share.

6) Rule of law – Fair law enforcement will heighten investor confidence, in addition to reflecting a country’s overall governance. According to the World Bank’s governance rankings, Thailand was ranked at 3rd place among countries within the study and received 0 points out of total 2.5 points, following Malaysia and Vietnam.

7) Labor costs – Labor costs are one of the main costs of production and hence act as an important factor in investment decisions for foreign investors. Thailand’s labor costs were the second highest in the group at USD 472.5 per month, which was higher than Indonesia, the Philippines, and Vietnam.

8) Trade agreement incentives – Trade agreements provide export tax benefits to countries included in negotiations. The trade agreements a country holds will therefore be another important investment decision-making factor for foreign investors.

Analysis revealed that there were many multilateral free trade agreements Thailand failed to join, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) that Vietnam and Malaysia have already joined. Furthermore, free trade negotiations with the EU have not been completed and are only at the feasibility study stage, though Vietnam has already entered an FTA with the EU, while the Philippines and Indonesia are currently negotiating an FTA with the EU. Thailand however has an advantage in terms of bilateral FTAs. For example, Thailand holds FTAs with China (unique among its peers) and New Zealand (only Thailand and Malaysia). However, the bilateral FTAs Thailand possesses do not provide Thailand much competitive advantage as they are superseded and overlapped by the ASEAN-China and ASEAN-New Zealand FTAs that its peers have joined.


This analysis therefore supports the proposition that Thailand has a high potential for luring foreign investment, with Vietnam and Malaysia being key competitors. Thailand, Vietnam, and Malaysia are countries with comparable levels of readiness in many aspects. Issues for Malaysia include significantly higher labor costs when compared to the other two countries, which could discourage foreign investment. Meanwhile, Vietnam is Thailand’s key competitor due to lower labor costs, and its possession of broader FTAs such as the CPTPP and the Vietnam-EU FTA. As a result, Thailand needs to focus on increasing labor productivity to show foreign investors that higher labor costs in Thailand lead to higher productivity as well. Thailand should also consider joining more FTAs to maintain competitiveness. Most importantly, Thailand should continue to maintain and develop its level of competitive advantages in terms of tax benefits, infrastructure, and export capabilities to prevent peers from surpassing Thailand’s rankings


Source : EIC analysis based on data from “Thailand revealing that Thailand does not need to increase tax benefits to attract investment” (Athiphat Muthitacharoen, 2017). Additional sources : “Taxing investments in the Asia-Pacific region : The importance of cross-border taxation and tax incentives” (Verena Wiedemann, 2015), CEIC, World bank, and Trading economics

Remarks : Labor productivity was calculated from GDP (constant 2011 PPP $) per employment figures

Figure 17 : Factors that impact foreign investors’ investment decisions in Thailand vs. regional peersCorporate income tax rate in 2019

Quality of trade and transport infrastructure by World Bank in 2018

Ease of doing business by World bank

Rule of law in 2017 by World bank

Productivity in 2018

Share of world exports in 2018

Average monthly wage

Unit : %

Unit : Best score of 5 – Lowest score of 0

Unit : Rank, Closer to the 1st rank indicated easier to do business.

Unit : Best score of 2.5 – Lowest score of -2.5

Unit : USD per person per year

Unit : %

Unit : USD per month

1

2

4

6

3

5

7

7.69.9

13.9

10.2

17.9

9.6 9.211.4

15.6

22

20 20

25 24

30

0

5

10

15

20

25

30

Thailand Vietnam Indonesia Malaysia Philippines

maximum incentives EATR (Athiphat 2017)

maximum incentives EATR (Wiedemann 2015)

Corporate income tax rate

14

3.2 3.1 3.02.9

2.7

2.4

2.9

Malaysia Thailand Vietnam Indonesia Philippines

Higher Score

58,687

30,115 24,849 19,91811,142

020,00040,00060,00080,000

Malaysia Thailand Indonesia Philippines Vietnam

Higher productivity

15 27

69 73

124

0

50

100

150

Malaysia Thailand Vietnam Indonesia Philippines

Higher rank

1 1.51.3 1.3

0.9

0.3

0.0

1.0

2.0

Vietnam Thailand Malaysia Indonesia Philippines

More competitiveness

0.4

0.1 0.0

-0.3 -0.4-0.5

0.0

0.5

Malaysia Vietnam Thailand Indonesia Philippines

Higher Score

893.0

472.5

249.0 220.2 185.2

0

500

1,000

Malaysia Thailand Vietnam Philippines IndonesiaHigher average monthly wage


Source : EIC analysis based on data from Asia Regional Integration Center, ADB

Note : Does not include free trade agreements under study and negotiation.

* European Free Trade Association members are Iceland, Liechtenstein, Norway and Switzerland

Thailand Malaysai Vietnam Indonesia Philip-

pines

Multilateral FTAs

ASEAN FTAs

ASEAN Free Trade Area

ASEAN-Australia and New Zealand Free Trade Agreement

ASEAN-Hong Kong, China Free Trade Agreement

ASEAN-India Comprehensive Economic Cooperation Agreement

ASEAN-Japan Comprehensive Economic Partnership

ASEAN-People’s Republic of China Comprehensive Economic Cooperation Agreement

ASEAN-South Korea Comprehensive Economic Cooperation Agreement

Other FTAs

Preferential Tariff Arrangement-Group of Eight Developing Countries

Trade Preferential System of the Organization of the Islamic Conference

Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)

FTA with European Union

FTA with European Free Trade Association*

Bilateral FTAs

China

Japan

India

Korea

Australia

Chile

Pakistan

Turkey

New Zealand

Laos

Peru

8 Malaysia


Interest rates and exchange rates outlook

in 2019 and 2020

Global central banks’ ongoing loosening monetary policy may only keep economic slowdown from aggravating

The world’s key central banks are expected to maintain their easing monetary policies in response to decelerating economic growth, high geopolitical risk, and low inflation rates. At a recent meeting in September 2019, both the US Federal Reserve (Fed) and European Central Bank (ECB) kept their loosening monetary policies. The Fed decreased its policy rate further 25 bps to 1.75-2.00% while the ECB trimmed its deposit rate from -0.4% to -0.5% and announced a restarting asset purchase programme (APP) at a monthly pace of US 20 billion. Meanwhile, the Bank of Japan (BOJ) kept its policy rate and asset buying unchanged, signaling potentially considering stimulus measures in the next meeting round.

In the coming stage, EIC expects the Fed to adjust its policy rate downward one more time (by 25 bps) in the last quarter of 2019, and the ECB to ease the monetary policy further with a policy rate cut (deposit rate) of 10-20 bps.

Nevertheless, the EIC believes that easing monetary policies in the coming phase may have limited effectiveness. With shrinking policy space and higher chances of unintended consequences, the global central banks are required to cautiously consider their next moves and may decide to proceed with less aggressive measures. This article will provide an assessment of the limitations of each measure the central banks are due to consider.

The Fed’s policy rate cut can be made only in a limited amount and may be less effective compared to past cuts. The effectiveness of a policy rate cut can be assessed from the real policy rate1. A decrease in nominal policy rate influencing the real policy rate to be significantly lower than the natural policy rate2 indicates a highly loose policy rate stage, which encourages economic expansion. In the past when the US faced recessions, including the downturn of 1990, the dotcom bubble of 2001, and subprime crisis of 2008, the Fed was able to reduce the real policy rate to a level lower than the natural policy rate by as much as 242 bps, 445 bps, and 320 bps respectively3.

FM Outlook : Limited policy space

1 Nominal policy rate minus the headline inflation rate 2 The real policy rate which is in line with economic growth potential and inflation target3 During the crisis in 1990, the real policy rate by the end of the rate cut cycle was 0.32% and the natural policy rate was 2.74%. In 2001, the real policy rate by the end of the rate cut cycle was -1.87% and the natural policy rate was 2.58%. In 2008, the real policy rate by the end of the rate cut cycle was -2.08% and the natural policy rate was 1.12%.


Nevertheless, in the present situation, even though the Fed cut its policy rate to the range of 0-0.25%, the real policy rate would still be lower than the natural policy rate by only 175 bps4. The effectiveness of the policy rate reduction is therefore less than in the past (Figure 1)The EIC thinks that there is a small chance for the Fed to drop the policy rate below 0% as Fed chair Jerome Powell has indicated that a negative interest rate policy would not be activated in response to a US economic slowdown. Additionally, the Federal funds rate has hit a record low of only 0-0.25% (during the subprime crisis in 2008).

Although the ECB and the BOJ have already proceeded with a negative interest rate policy, the two central banks are facing a number of restrictions obstructing further rate cuts.

• Negative interest rates will threaten the financial position of banking institutions, affecting credit creation. Any further decrease in the negative interest rate will burden banks with lower deposit rates for their reserve requirements, which will trouble the banks’ financial status (equity on balance sheet) and could encourage banks to hold cash instead of liquid assets. A study by the ECB5 indicated that this circumstance could pressure the banks to issue fewer loans.

• Negative interest rates will lead to falling return rates for firms in the financial sector, particularly insurance companies. Low or negative interest rates influence bond yields to also lower or become negative in some tenors. This affects financial firms having a large number of bonds in their investment portfolios. To name a few, insurance companies can be immensely impacted as they may not be able to gain returns enough to pay their policy holders.

• Having search-for-yield behavior, investors may turn to invest in high-risk assets. Due to bond yields becoming much lower than in the past, investors need to take higher risks in order to earn returns higher than holding a government bond. This also leads to higher financial stability risks. Moreover, low financial costs may encourage investment companies to invest in high-risk projects.

• Low interest rates may not boost household spending. A further rate cut will decrease the return of household retirement savings. Households may therefore be pressured to increase their savings instead of choosing loans with low interest rates and accelerating their spending today.

Figure 1 : Even if the Fed cut the policy rate to the range of 0-0.25%, the effectiveness of the policy rate reduction would be less than in the past.

Source : EIC analysis based on data from Bloomberg, and Holston Laubach and Williams (2017)

Fed’s monetary policy during the US recession period

Unit : %

4 If the Fed cut the policy rate to the range of 0-0.25%, the real interest rate would be at -1.25% while the natural interest rate at the end of the 2nd quarter of 2019 was at 0.51%.5 ECB’s working papers, “Is there a zero-lower bound? The effects of negative policy rates on banks and firms”, June 2019

-6-5.5

-5

-2.25

-4.4 -4.38

-3.09

-2.25-2.43

-4.46

-3.20

-1.75

-7

-6

-5

-4

-3

-2

-1

0

1990-91 2001 2008-09In case Fed cuts the policy

rate to 0-0.25%

All the nominal policy rate cuts in each cycleAll the real policy rate cuts in each cycleThe difference between the real interest rate and the natural interest rate at the end of each cycle


Quantitative easing (QE), another tool of loose monetary policy, also faces limitations. The inability to proceed and the decreasing effectiveness of low interest rates might force central banks to depend on unconventional monetary policy such as financial asset purchases. However, this measure too has restrictions.

• The amount of assets to be purchased may be smaller, leading to lowered effectiveness. Earlier, the Fed and the ECB have published a study showing the effectiveness of asset purchasing measures compared to interest rate cuts. Based on the study, the Fed and the ECB must purchase assets of a total value of US 2.8 trillion6 and EUR 1.5 trillion7 respectively in order to make the measures as effective as an interest rate cut of 100 bps (non-negative). At present, the ECB has announced it would make asset purchases of a total value of EUR 20 billion per month (around EUR 2.4 hundred billion per year) which is very little compared to the amount required in the study. Meanwhile the Fed has not indicated the possibility of proceeding with asset purchasing measures. The EIC believes there is a low chance of the Fed returning to QE in the same format and amount similar to post-GFC. As for the BOJ, the, EIC sees the ratio of assets currently possessed by the BOJ growing consecutively and risk distorting the market in the long run. This limits the ability of Japan’s central bank to make any further asset purchases in the near future. • The long-term government bond yields are currently lower than in the past. The purpose of asset purchasing measures is to decrease the long-term government bond yield through deduction of term premiums in order to reduce the cost of fundraising in money markets. Nevertheless, at present, long-term government bond yields are already very low. From the end of 2008 financial crisis until August 2019, the 10-year government bond yields of the US, Germany, and Japan dropped by 252 bp, 500 bp and 178 bp to 1.49%, -0.70% and -0.27% respectively. Any further asset purchases may not be able to lower the level of government bond yields as effective as in the past.• Legal restrictions the three countries must obey. US law allows the Fed to only purchase government bonds, mortgage-backed securities (MBS) and government bonds of other countries. It cannot purchase equity securities, real-estate investment trusts (REIT) or corporate bonds. In this regard, the Fed has limited options for purchasing financial assets. As for the ECB, although the law authorizes it to purchase any financial assets mentioned above, the central bank faces restrictions in purchasing foreign assets directly. For Europe, there is a 33% issuer limit on the maximum share of an issuer’s outstanding securities that the ECB is allowed to hold, which prevents the chances of extreme bond market distortion. In terms of BOJ, although the central bank can purchase any kind of financial assets, it is not permitted to buy any foreign assets and therefore its ability to directly control exchange rates is limited. Although all three central banks have recently been continuously loosening their monetary policy, inflation rate have stayed below targets. This may cause forward guidance to be less efficient in the coming stage. The efficiency of forward guidance - or the communication from a central bank regarding the state of the economy and likely future course of monetary policy – depends on the capability of the central bank keeping the inflation rate close to the target. Nevertheless, after the global financial crisis in 2008-2009 ended, the Fed and the ECB struggled to keep the inflation rate close to the 2% target (Figure 2), bringing down the efficiency of forward guidance in future stages.

6 The Federal Reserve’s Current Framework for Monetary Policy : A Review and Assessment (2019)7 Monetary Policy and Below-Target Inflation, Lane (2019)


Figure 2 : After the global financial crisis during 2008-2009, the Fed and the ECB struggled to keep the inflation rate close to the 2% target.

Source : EIC analysis based on data from Bloomberg

Headline inflation for the US and Eurozone

Unit : %

With monetary policy tools facing more limitations, global central banks may turn to other measures in order to ease the policy, namely macroprudential instruments or loosen bank lending standards. The central bank may proceed with macroprudential tools by reducing the countercyclical capital buffer (CCyB). In normal terms, if the economy expands well commercial banks are required to have capital buffers at a higher amount than during an economic slowdown in order to build stability and resistance to systemic risk. However, with the current global economic situation signaling decelerations and recessions in some countries, the central banks have the potential to scale down CCyB so that commercial banks can issue more loans. Moreover, allowing bank lending standards to be less restrictive could also help boost economies. With people having more chances of successfully applying for bank loans, public consumption and investment can improve. Nevertheless, this measure still has some limitations. A central bank may not have the power to proceed with all the policy tools and adjusting bank lending standards may take time. For example, the Fed is not the only authorized body controlling macroprudential instruments in the US. Furthermore, apart from commercial banks, there are also other parties who can issue loans. As a result, a measure concerning loans might be rather difficult. Meanwhile, the ECB does not have the absolute right to control macroprudential regulation for all member countries. Moreover, policy coordination between monetary and fiscal policies should be implemented.

0

0.5

1

1.5

2

2.5

3

Average headline inflation before the 2008 globalfinancial crisis (2003-2007)

Average headline inflation after the 2008 globalfinancial crisis (2010 to present)

US Eurozone


Figure 3 : A chart of countercyclical capital buffer (CCyB) of European countries

Source : European Systemic Risk Board (ESRB) as of September 18, 2019

Using Fiscal policy along with monetary policy to boost the economy may be more necessary in the coming stage. With monetary policy facing increasing limitations, using fiscal policy in line with monetary policy to fuel economic growth becomes more relevant. A government may agree to an increased budget deficit or a higher debt-to-GPD ratio in order to stimulate spending and investment. For instance, Germany in September 2019 unveiled a climate change package to boost its economy with extra spending and tax subsidies. The EIC however sees the ability to use fiscal policy in the near future to be quite challenging, as many key economies still have legal restrictions obstructing governments from freely activating measures. Germany’s self-imposed balanced budget goal following the constitutional debt brake forces the German government to run its fiscal policy with a budget surplus in order to make up for the budget deficit caused during economic downturn. Moreover, the government budget deficit cannot exceed 0.35% of GDP and the German government must only allow budget deficits in time of emergency.

In the case of the US, a political landscape uncooperative with a stimulus plan and an already large budget deficit limit fiscal policy moves. At the moment, the Democratic party constitutes the majority of the US House of Representatives and therefore has more bargaining power to control tax policy. As a result, the Trump government faces difficulty in enacting economic stimulus measures. Moreover, the US budget shortfall is likely to continue. A fiscal policy increasing the deficit will be a challenge and requires serious reasoning. The Congressional Budget Office (CBO) estimates the US budget deficit in 2019 to be US 9.6 hundred billion (4.5% of GDP), to continue throughout 2020 and 2021, and to hit US 1 trillion (about 4.5% of GDP). With this situation, any move leading to a further budget deficit must be a result of severe conditions, such as a critical economic recession.


Outlook on Thailand’s policy rate and government bond yields

The EIC expects the Monetary Policy Committee (MPC) to make another rate cut in 2019 based on the following :

1. The MPC is concerned about the deceleration of Thai economy and remaining high external and internal risks. Concern was indicated via revised GDP growth forecasts in September. The 2019 growth projection was trimmed from 3.3% to 2.8% and 2020 growth projection was reduced from 3.7% to 3.3%.

2. Macroprudential measures being activated earlier through residential mortgage loan control has partly helped manage the country’s financial stability risk. Moreover, the Bank of Thailand (BoT) has run a microprudential policy requesting commercial banks to carefully issue loans in order to keep household debt under control.

3. Thailand’s financial conditions are considered tight. For instance, the Thai baht has been strong and a declining loan growth.

The EIC expects the MPC to keep the policy rate at 1.25% (the record low) in 2020. According to the EIC’s 2020 Thai economic projection, a scenario analysis under a base case, Thailand’s economy will expand by only 2.8%. Even without a technical recession this growth is below potential. As a result, the MPC is likely to keep the record low policy rate (1.25%) throughout 2020 in order to help the Thai economy recover.

However, the MPC may cut the policy rate one more time if the Thai economy slips into a technical recession. In a worst case scenario under the EIC’s 2020 Thai economic projection – which could happen if exports decline more than expected or private consumption and investment decelerate beyond expectation - Thailand’s economy could grow by only 2.0% and face a technical recession. If this occurs, the EIC believes the MPC may cut the policy rate by 25 bps to 1.0%.

In terms of short-term government bond yields, the EIC has revised the forecast for 1-year bond yields at

the end of 2019 to 1.25-1.30% (from 1.65-1.75%) and at the end of 2020 to 1.20-1.30% in accordance with the MPC’s policy rate cut this year and rate maintainance next year.

The EIC also has revised its 10-year bond yield projection at the end of 2019 to 1.40-1.45% (from 1.9-2.0%) and at the end of 2020 to 1.30-1.40% as the US Treasury yield has the potential to decrease further and the Thai economy is likely to continue decelerating. Thailand’s 10-year government bond yield on September 27, 2019 was at 1.49%, a decline by 99 bp from the beginning of the year, following the fall of the US Treasury yield, which dropped by 98 bp during the same period (Figure 4). In the coming stage, the US Treasury note yield is expected to fall further due to the following factors :


1) Investors have the potential of buying safe havens while global economic risks are growing. The trade war got worse when the US raised tariffs on imports from China in May and August. Accordingly, the yield on 10-year US Treasuries dropped by 37 bp and 51 bp respectively. Moving forward, geopolitical risks are likely to remain high due to the uncertain trade war situation and prolonged Brexit issue.

2) US consumption signals a slowdown, potentially causing the US economy to decelerate more than investors expect. Adjusted for inflation, US consumer spending increased only 0.1% in August 2019, the lowest rate since February. Additionally, the US consumer confidence index in September dipped to 125.1 from 134.2 a month earlier. This index level is below the market projection of 133.5. Beyond a slump in the US production sector being felt across the market, the US consumption downshift may as well cause US GDP to decelerate more than market projections.

3) The Fed resuming balance sheet growth is another factor forcing US Treasury yields to fall. Fed chairman Jeremy Powell indicated that the next policy meeting may consider resuming organic growth of its balance sheet through open market operations (OMO)8 after letting the balance sheet shrink since October 2017. This potential move is likely to decrease US Treasury bond yields due to the Fed’s rising demand for the bills. Nevertheless, the EIC expects this policy move to have a limited impact, unlike the QE measures activated after the global financial crisis in 2008 as described earlier.

Figure 4 : Thailand’s 10-year government bond yield has moved in line with the 10-year US Treasury yield

Source : EIC analysis based on data from ThaiBMA

Long-term Thai government bond yields and long-term US government bond yields

Unit : %

The internal factor pressuring government bond yields to decline is the potential for the Thai economy to continue decelerating. During January to August 2019, Thai exports contracted by 2.2%YOY. The EIC projects the value of Thailand’s exports in 2019 to contract by as much as 2.5%. This drop will affect private consumption to slow down due to decreasing income and employment, particularly in the manufacturing-for-export sector. The EIC expects Thailand’s economic expansion rate in 2019 and 2020 to grow at 2.8%, a rate lower than what the market projected at 3% and 3.3% respectively. Moreover, inflation rate projection has a potential to be scaled down. EIC believes that Thailand’s average inflation rate will remain below the 1% monetary policy targeting range in 2019 and 2020. The trimmed inflation rate projection will as well influence Thailand’s government bond yields to fall.

1.25

1.65

2.05

2.45

2.85

3.25

3.65

4.05

4.45

Jan-

13

May

-13

Sep-

13

Jan-

14

May

-14

Sep-

14

Jan-

15

May

-15

Sep-

15

Jan-

16

May

-16

Sep-

16

Jan-

17

May

-17

Sep-

17

Jan-

18

May

-18

Sep-

18

Jan-

19

May

-19

Sep-

19

TH 5y Yield TH 10y Yield US 10y Yield

8 This round of resuming balance sheet growth will mainly focus on ‘Liabilities’ in order to create ample liquidity in the system. This is different from QE measures during post-GFC during which the Fed made asset purchases, boosting the ‘Assets’ side of the sheet.


Exchange Rate Thai baht in the coming phase is likely to remain stable at close to the present level. The EIC expects the value of the Thai baht at the end of 2019 and 2020 to be between 30.3-30.8 and 30-31 baht per dollar respectively. The value of Thai currency as of September 27, 2019 was 30.65 baht per dollar. In the coming stage, the baht is likely to remain stable as the currency is being pressured to strengthen and devalue at the same time.

• The key factors forcing Thai baht to remain strong are the country’s high current account surplus and Thai investors having a home bias which limits capital outflow. A study by the EIC indicated that countries with high current account surplus will have stronger exchange rates than countries with low current account surplus or current account deficits (Figure 5). Based on an assessment by the EIC, Thailand’s current account surplus will be as high as 6% of GDP both in 2019 and 2020. Accordingly, the Thai baht is facing continuous pressure to remain strong. Additionally, Thai investors are known to have a home bias. They tend to invest in domestic equities and forego gains from international markets. They depend on a foreign exchange hedging (FX hedge) to eliminate FX risks resulting from transactions in foreign currencies when investing overseas. These factors impede the Thai currency from devaluing. The ratio of Thailand’s international assets to GDP is rather low compared to other countries in the region (Figure 6), a reflection of the home bias in Thailand.


Figure 6 : The ratio of Thailand’s international assets to GDP is rather low compared to other countries in the region.

Source : EIC analysis based on data from CEIC, Bloomberg and IMF

International assets* to GDP in 2018

Unit : % of GDP

Figure 5 : Countries with high current account surplus will have stronger exchange rates than countries with low current account surplus or current account deficits.

Source : EIC analysis based on data from Bloomberg and Bank of Thailand

Current account to GDP and Change in exchange rate Thailand’s current account surplus and USDTHB

Change in exchange rate from the end of 2015 to present (01/10/19)

Average of current account to GDP from 2015 to 2018

Unit : USD million (6 months aggregate)

Unit : % Change of currency compared to 6 months ago

Note : *data include reserves asset

Thailand

India

Malaysia

Philippines

Indonesia Korea

Taiwan

Japan

Australia

New Zealand

UK

Canada

Switzerland

Mexico

Germany

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

-6 -4 -2 0 2 4 6 8 10 12 14 16

= Appreciation

-0.1

-0.08

-0.06

-0.04

-0.02

0

0.02

0.04

0.06

0.08

8000

10000

12000

14000

16000

18000

20000

22000

24000

26000

28000

Jun-

15

Sep-

15

Dec-

15

Mar

-16

Jun-

16

Sep-

16

Dec-

16

Mar

-17

Jun-

17

Sep-

17

Dec-

17

Mar

-18

Jun-

18

Sep-

18

Dec-

18

Mar

-19

Jun-

19

Thailand’s current account surplus USDTHB (RHS)

33% 53% 88% 96% 113% 128%185% 217% 245%

496%

689%

1054%

-100%

100%

300%

500%

700%

900%

1100%

Indo

nesia

Philip

pine

s

Sout

h Ko

rea

Thailand

Malay

sia

Aust

ralia

Japa

n

Can

ada

Ger

man

y

Englan

d

Switz

erland

Sing

apor

e


• The factor keeping Thai baht from appreciation is the US currency, which has the potential to

get stronger. The US dollar index as of September 27, 2019 strengthened by 3.13% compared to the beginning of 2019. The EIC believes this trend was influenced by 1) The global economy showing sign of a slowdown encourages investors to hold haven assets, namely US Treasury bonds and the US dollar, and 2) the Fed’s two policy rate cuts (50 bp) in 2019 as per market expectations, which have kept the US dollar strong. In the next phase, the EIC expects these two factors to remain in the play. The global economy will still be affected by the unsettled trade war. The EIC projects the Fed adjusting the policy rate down one more time in 2019 and just one time in 2020, while the market expects one further rate cut this year and two rate cuts next year. Therefore, the USD may not devalue much due to this potential under-deliver by the Fed.

Based on all the cited factors, the EIC expects the value of Thai baht in relation to the US dollar to remain close to the current level. Baht will be pressured to strengthen by a high current account surplus and Thai investors’ home bias, while being pushed to devalue by an appreciating US dollar. In this regard, the EIC projection on baht will remain stable in relation to the US dollar.


BULL-BEAROil Price

Bull-Bear Oil Price

Bull - Bear Oil Price

Oil prices(USD/barrel)

2018 2019F 2020F

Q1 Q2 Q3 Q4 Average Q1 Q2 Q3 Q4F Average* Price Range** Average*

WTI 63 68 70 59 65 55 60 56 55 57 54-59 55

Brent 67 75 75 68 71 63 68 62 62 64 60-66 62

* Annual baseline average crude oil prices estimated by EIC

**Annual baseline crude oil price ranges estimated by 5 leading global houses (as of September 26, 2019)

BULLs BEARs

• On 14 September 2019, two oil facilities in Abqaiq and Khurais, Saudi Arabia, were attacked by drones, impacting the country’s oil production capacity by 5.7 million barrels per day, or approximately 50% of its total oil production capacity. This led to a 13% rise in the Brent oil price – to 68 USD/barrel. However, oil prices adjusted down to 64 USD/barrel once Saudi Arabia confirmed that oil production would be able to return to the normal production level of 12 million barrels per day by November. Nevertheless, the attacks on Saudi Arabia have intensified the situation in the Middle East. This could push up oil prices if such tensions are prolonged to the extent that it leads to a tightening of the oil supply. • OPEC members and Russian-led partners agreed to continue limiting crude oil production over the long term in order to maintain a balance in the oil market. Trends indicate that OPEC could extend its production limit of 1.2 million barrels of oil per day to the middle or end of 2020 instead of in March 2020. In addition, Saudi Arabia is preparing an IPO for its national oil company, Saudi Aramco, and therefore needs to increase oil prices for better stock value. Saudi Arabia has set its target crude oil price at 70 USD/barrel.

• If Saudi Arabia returns to its normal oil production capacity, the market will see an oil surplus, which will contribute to a lowering of oil prices. For the fourth quarter of 2019, the U.S. Energy Information Administration (EIA) estimates the crude oil supply level to be 102.3 million barrels per day, higher than the demand for oil, which is almost 5 hundred thousand barrels per day. In 2020, the EIA expects a surplus of 3.5 hundred thousand barrels of oil per day, where the demand and supply of crude oil would be at 102.2 and 102.6 million barrels per day, respectively. The demand for oil can be attributed to the slowdown in the global economy – a result of the protracted trade war between the U.S. and China.

• A number of U.S. pipeline projects delivering crude oil from the Permian Basin to the Gulf of Mexico are expected to begin operating in late 2019 and 2020. These will alleviate the bottleneck in oil transportation in the U.S., and lead to an increase in oil supply in the country. For example, the EPIC Crude Oil Pipeline, with a capacity of 4 hundred thousand barrels per day, will begin operating at the end of 2019. The Exxon/PAA and Jupiter Pipelines, each with a capacity of 1 million barrels per day, will begin operating in 2020. Given this, the EIA estimates that in 2020, the U.S. will extract up to 13.2 million barrels of crude oil per day (8.2%YOY).

Crude oil prices


EIC’ s view : BearCrude oil prices are expected to stabilize or decrease in Q4 of 2019 in comparison with the previous quarter. This is due to a surplus of almost 5 hundred thousand barrels of oil per day in the market. Demand for oil is slowing in parallel with the global economy, which is facing pressures from the protracted U.S.-China trade war and economic issues in Europe stemming from a no-deal Brexit. On the other hand, the expansion of the oil supply will come primarily from U.S.-based producers. During this fourth quarter, the EIA estimates that the U.S. will extract nearly 13 million barrels of crude oil per day, a growth of 7.5% YOY. As for the missing oil supply from Saudi Arabia following the attacks on its facilities, it is expected that production will resume normal operations during the fourth quarter.

While Saudi Arabia is pushing ahead on repairs to its oil facilities to ensure that it can return to full production capacity, the country will turn to its crude oil reserves of around 190 million barrels to use for export. Over in the U.S., President Trump has approved the use of strategic oil reserves, if necessary, to ensure that there is sufficient oil supply in the market, therefore assuaging any concerns regarding a tighter oil supply. Even so, it is necessary to keep an eye on Saudi Arabia – if violence escalates to the extent of war in the Middle East, there is the upside risk that crude oil prices will remain at high levels.

The EIC estimates that the Brent crude oil price will be at 62 USD/barrel in 2020, decreasing by approximately 3% YOY. This is due to prevailing concerns about the surplus of around 3.5 hundred thousand barrels of oil per day in the market (higher than in 2019, which saw a surplus of 2.3 hundred thousand barrels per day), mainly due to the expansion of the oil supply in the U.S. Meanwhile, demand for oil will depend on global economic conditions in 2020, which is expected to slow down more than in 2019. Nevertheless, relaxed monetary and financial policies are expected to help support the global economy to a degree. In light of these considerations, the EIC expects that the oil price could be higher than 60-62 USD/barrel. Finally, it’s important to monitor whether and how long OPEC will extend its limits on crude oil production in 2020, which will be a factor in propping up oil prices as well.


Higher Degree + Good Grades + Job Hopping = Great Salary?

Data Analytics :

Higher Degree + Good Grades + Job Hopping = Great Salary?

EIC analyzed over 700,000 online resumes on Thai job search websites to determine factors dictating the employment patterns and salaries of Thai professionals. The analysis revealed that higher education, good grades, and frequent job-switching (until a certain point) meant better salaries.

Higher education levels translated to higher salaries. The average entry-level salary for applicants with high school degrees or lower was THB 14,000. Meanwhile, applicants with a bachelor’s degree, the majority of the sample (84% of total job seekers), earned salaries of THB 17,000 on average. As for higher degrees, including master’s and doctorates, average salaries were THB 24,000 and THB 36,000, respectively.

Decent GPA influenced higher salaries and will have an impact for at least 10 years. A comparison between salary and grade point average revealed a THB 1,700 difference in salaries between applicants with low GPA figures during their bachelor’s degree (2.0-2.5) and those with higher GPAs (3.5-4.0). Moreover, the study found that those with higher GPAs had higher entry salaries and the higher pay increments per year than those with lower GPAs throughout the first 10 years after graduating. However, Bachelor’s degree GPA was not the deciding factor for the salary difference, though it might act as an indicator corresponding with the applicant’s ability to work, which then reflected the salary offered.


Figure 1 : Applicants with higher levels of education had higher average entry salaries

Figure 2 : GPA and entry salary were positively correlated

Source : EIC analysis based on data from online job applications



Apart from education level and GPA, frequent job switching resulted in higher salaries compared to those staying at jobs for longer periods. EIC studied applicants’ salary-relevant factors such as positions held, duration per position, and salary in the respective position. Job switching for the purposes of the study was considered to include internal transfer positions, internal job promotions, and external job switching. The analysis of the data by controlling time factor, EIC has some observations as follows :

• For applicants with a maximum of two years work experience, EIC found that those with 1-3 job relocations saw salary increases of roughly 20-40% over their starting salary (most recent salary vs. starting salary).However, salary increments for those with four job changes were only 10% (most recent salary vs. starting salary). This finding pointed out that overly frequent job-hopping during entry-level stages might not result in the highest salary increments, and that job changing could be a signal to employers that the applicant had a problem passing their probation period.

• Meanwhile, for applicants with two or more years of work experience, job switching frequency due to promotions, internal transfers, or external transfers was positively correlated with salary increments. This finding could be a result of greater work experience and skills influencing more frequent job promotions or job transfers, which eventually lead to higher salaries.

Figure 3 : Sample applicants with frequent job changes had higher salary increases, however those that exceeded 3 job switches within 2 years had slower salary increases



1 During the first half of 2019, incomes for manufacturing sector employees in fields related to technology averaged of THB 26,155 per month, whereas incomes for manufacturing sector employees working without technology skills averaged only THB 13,312 per month.

According to these results, education level and grades should be an applicant’s focus in order to obtain a higher starting salary. This is because the applicant’s grades and level of education are indicators that employers use to benchmark and compare applicants graduating in the same fields. Hence, students who are preparing to enter the workforce should focus on obtaining good grades. As for those already in the labor market, job switching could enable faster salary increases. However, it is important to note that job switching should not be too frequent, as frequent job changes among entry-level applicants are a bad signal for employers. With current labor market conditions showing lower figures for hours worked and slower salary growth, applicants can differentiate themselves by increasing their skill sets, especially technology-related skills. According to Thai labor statistics during the first half of 2019, employees in the manufacturing sector with technology-related skills received higher pay than those without technology-related backgrounds, by as much as 96%1. Furthermore, during the same period, the unemployment rate for manufacturing employees with tech skills was 0.1%, lower than the rate for those with backgrounds unrelated to technology at 0.8%. Therefore, applicants who can develop skills meeting market demand will result in higher competitive advantage.


OutlookQ4/2019In Focus

Given the complexities in Thailand’s financial markets nowadays, to rely only on a few financial market indicators for assessing and analyzing financial conditions may lead to incomplete results. Thus, for this issue of In-Focus, EIC has constructed a Financial Conditions Index (EIC-FCI) that combines multiple financial indicators relevant to the money and capital markets, allowing for more complete and effective analysis of Thailand’s financial conditions.

Thailand Financial Conditions Index

Thailand’s financialconditions index Reflects financial conditions using multiplefinancial indicators. An easing financial condition allows consumers and firms to consume and invest more, while a tightening financial condition leads to higher funding costs, which discourage consumption and investment.

To provide an assessment of the financial environmentthat enables optimal investment and consumption decisions, as well as informs suitable monetary policy decisions in line with economic developments.

EIC has developed a Financial Conditions Index (FCI) to gauge the degree of easing or tightening of the financial conditions. FCI incorporates the following variables and transmission mechanisms:

Policy rate cut in Q3 2019

Nominal effective exchange rate

rises 7.7% while USDTHB

only gains 5.6% Stock marketindex falls

Bank lending and corporate funding throughdebt securities and equities

Volatilities in the global financial

markets can impact financial conditions

in Thailand

(Data as of 30 sep 2019 compared

to end 2018)

Interest rates and government

bond yieldsStock

market returns

Exchange rates Household and

corporate funding

Uncertainties in the global financial

markets

12

34

5

Households rely on bank loans to raise funds

Corporates

can raise funds through bank loans or bond

and stock issuance

Households that invest in stocks see negative wealth effect

More difficult for corporates to raise

funds in the stock market

SCB EIC Financial Condition Index (FCI) Stylized facts and implications for monetary policy and business strategies

Higher volatility can hurt overall

confidence

During periods of heightened risks, capital

will flow from EM assets to safe assets

Government bond yields fall

Commercial bankrates decline

Corporates have easier access

to funding

Negative impact on Thai exporters

Support for Thai importers

Why do we need a Financial ConditionsIndex for Thailand?

Currently, Thailand’s financial conditions are tighter than historical average due to the slowdown in bank lending, the strength in Thai baht, and the limitedgrowth in stock market. Meanwhile, low interest rates help ease financial conditions somewhat.

Despite the policy rate cut, financial conditions would not ease significantly

as long as other factors do not respond.

Different types of corporates face different financial conditions.

While large companies benefit from an easing,SMEs face tightening financial conditions due to

the slowdown in bank lending.

The conduct of monetary policy has become more challenging,

as interest rates are lower than before, while domestic and external risks are on the rise.

Business planning must take into account developments on the external frontas external risks have triggered severe tightening in

Thailand’s financial conditions in the past.

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7

12

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Financial condition index : FCIUnit: Index

Source: EIC calculation based on data from The Bank of Thailand, Thai BMA, and The Stock Exchange of Thailand.

Easing financial conditionsTightening financial conditions

FCICommercial bank loans New Issuance of Private securities

Avg. of Corporate spread for Group A (maturing in 3-5y) SET Index

VIX Index Long-term Thai government bond yields

Policy rate NEER

Thailand’s financialconditions index Reflects financial conditions using multiplefinancial indicators. An easing financial condition allows consumers and firms to consume and invest more, while a tightening financial condition leads to higher funding costs, which discourage consumption and investment.

To provide an assessment of the financial environmentthat enables optimal investment and consumption decisions, as well as informs suitable monetary policy decisions in line with economic developments.

EIC has developed a Financial Conditions Index (FCI) to gauge the degree of easing or tightening of the financial conditions. FCI incorporates the following variables and transmission mechanisms:

Policy rate cut in Q3 2019

Nominal effective exchange rate

rises 7.7% while USDTHB

only gains 5.6% Stock marketindex falls

Bank lending and corporate funding throughdebt securities and equities

Volatilities in the global financial

markets can impact financial conditions

in Thailand

(Data as of 30 sep 2019 compared

to end 2018)

Interest rates and government

bond yieldsStock

market returns

Exchange rates Household and

corporate funding

Uncertainties in the global financial

markets

12

34

5

Households rely on bank loans to raise funds

Corporates

can raise funds through bank loans or bond

and stock issuance

Households that invest in stocks see negative wealth effect

More difficult for corporates to raise

funds in the stock market

SCB EIC Financial Condition Index (FCI) Stylized facts and implications for monetary policy and business strategies

Higher volatility can hurt overall

confidence

During periods of heightened risks, capital

will flow from EM assets to safe assets

Government bond yields fall

Commercial bankrates decline

Corporates have easier access

to funding

Negative impact on Thai exporters

Support for Thai importers

Why do we need a Financial ConditionsIndex for Thailand?

Currently, Thailand’s financial conditions are tighter than historical average due to the slowdown in bank lending, the strength in Thai baht, and the limitedgrowth in stock market. Meanwhile, low interest rates help ease financial conditions somewhat.

Despite the policy rate cut, financial conditions would not ease significantly

as long as other factors do not respond.

Different types of corporates face different financial conditions.

While large companies benefit from an easing,SMEs face tightening financial conditions due to

the slowdown in bank lending.

The conduct of monetary policy has become more challenging,

as interest rates are lower than before, while domestic and external risks are on the rise.

Business planning must take into account developments on the external frontas external risks have triggered severe tightening in

Thailand’s financial conditions in the past.

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2

7

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Financial condition index : FCIUnit: Index


Easing financial conditionsTightening financial conditions

FCICommercial bank loans New Issuance of Private securities



Policy rate NEER

Why do we need a Financial Conditions Index for Thailand?Because financial conditions can impact economic conditions in a variety of different ways, any assessment must take a multi-dimensional view. EIC’s analysis of Thailand’s financial condition shows that in addition to money market interest rates, financial conditions are also influenced by other indicators such as exchange rates, which affect relative price competitiveness; firms’ access to credit and NPL ratios, which affect funding from commercial banks; stock market indices, which have a wealth effect as well as impact investor confidence; and global financial market volatilities, which affect capital flows and demand for Thai financial assets.

Apart from the impact on economic conditions, financial conditions can also influence economic and business cycles. Activities in money markets reflect investor expectations with regard to current and future economic conditions, which in turn influence the decisions of consumers and firms in the current period. This relationship creates a feedback loop among financial conditions, economic conditions, and economic and business cycles.

A financial conditions index allows for a more comprehensive and systematic environmental scan. An assessment of the financial conditions dynamic is important, both for policymakers seeking to deliver the best monetary policy given economic conditions, and firms wanting to make the right investment and consumption de-cisions given the financial environment. One of the tools that enable a systematic and comprehensive assessment of financial conditions is a financial conditions index, which accounts for the impact of various financial variables on economic conditions. Financial conditions become more accommodative when changes in financial variables support the expansion of economic activities, allowing people to consume and invest more. In contrast, financial conditions are tightened when those changes cause economic activities to cool, leading to fewer investment op-portunities and higher funding costs.


A study of Thailand’s Financial Conditions Index and its implications for policymakers and businessesVarious methods have been used for constructing a financial conditions index, including Vector Autoregression (VAR), weighted average, Principle Component Analysis (PCA), and macroeconomic modeling. Previous studies on constructing this type of index have proposed a number of approaches, such as assigning weights for each financial variable, with some adopting equal weighting that constitutes a simple average. Some studies use PCA to reduce the dimensions of the data, allowing for the characterization of a large amount of data using only a few indicators. Others even use macroeconomic models to identify the relationship between financial vari-ables and economic conditions and use that relationship to determine a weight for each variable in the financial conditions index.

In constructing the financial conditions index, EIC has opted for a Vector Autoregression approach, as it offers an intuitive understanding of variable dynamics and clear policy recommendations. EIC has adapted a methodology proposed by the International Monetary Fund (IMF) to construct a financial conditions index for Thailand. Moreover, this methodology is a widely-used method in top-tier studies. In the IMF study, which con-structs financial conditions indices for Asian economies, a VAR model was used to determine a weight for each variable according to its impact on the economy, with the largest weight assigned to variables with the largest impact on GDP. For EIC’s own model, VAR(1) is used to measure the impact of each financial variable on Thai-land’s GDP (for more details on the methodology for constructing the financial conditions index, please see BOX below). We considered the impacts of a shock on each variable 2-4 quarters after the shock1. Most academic studies such as the one conducted by the IMF (2013) measure the impact of financial variables on GDP over 2 quarters, while Chow (2013) considers both 2-quarter and 4-quarter impacts, depending on the variables. Also, EIC has modified the list of the variables included in the model to fit Thailand’s context. The selected variables are summarized in Table 1.

Table 1 : Variables included in EIC’s Financial Conditions Index for Thailand and their implications on financial conditions.

Source : Bank of Thailand, ThaiBMA, and SET (All variables used in the model are in standardized form.)

1 EIC calculates a weight for each financial variable using cumulative impulse response on GDP over 2 quarters after a shock in that variable. Nevertheless, for policy rate and government bond yields, the cumulative response of up to 4 quarters after a shock is considered, since the impulse response after 2 quarters was found to be too small. The limited response after 2 quarters can be explained by the limited number of market instruments in Thailand’s interest rate market (and the fact that movements in the policy rate generally take a long time to transmit to market interest rates), leading to a restricted impact on the policy rate on other market interest rates and a long lag time in the transmission to the real economy. The pattern can also be explained in part by the fact that Thailand’s policy rate has remained low for a long time and the data available does not date back long enough.2 New securities issued by the private sector include common stocks, preferred stocks, corporate bonds, promissory notes, and bills of exchange, the data for which are prepared by the Bank of Thailand.

Summary of financial variables included in Thailand’s Financial Conditions Index

Variable groups Variables Unit Impact on financial conditions

Interest rates in the money market and bond market

Policy rate level Tighten

10-year government bond yield level Tighten

Exchange rates Nominal Effective Exchange Rate (NEER)

YOY growth Tighten

Stock market returns SET index YOY growth Ease

Corporate spread Average corporate spread of A-rate corporate bonds with 3-5 year tenors

level Tighten

Household and business funding Loan growth QOQ growth Ease

New securities issued by the private sector2

QOQ growth Ease

Global financial market volatility VIX index level Tighten

Impacts on FCI (given a rise in each variable)


Transmission mechanisms of each financial variable to Thailand’s financial conditions1) Interest rates in the money market and government bond market (policy rate and government bond yield) : The policy rate is often the first variable most studies on financial conditions indices consider, since it serves as an anchor point for short-term bond yields in the market, and influences various types of commercial bank rates, including fixed deposit rates, savings rates, and benchmark lending rates like MLR and MRR. These rates, in turn, influence funding costs and the consumption and savings decisions of households and businesses. Longer-term interest rates are equally important, as they often determine funding costs for institutions that invest long-term (such as insurance companies and pension funds). In EIC’s financial conditions index, the 10-year government bond yield is used to represent longer-term interest rates. With regard to movements in long-term Thailand’s government bond yields, it is notable that yields do not always co-move with policy rates. Instead, they are in large part influenced by movements in U.S. Treasury government bond yields, with up to 0.7-0.8 correlation, and are also impacted by capital flow activities. 2) Exchange rates : Exchange rates constitute an essential factor for constructing a financial conditions index because Thailand is a small open economy with outsized international trade activity compared to its GDP but a still limited share of global trade, and because the Bank of Thailand (BOT) has since 1997 been operating a managed-float exchange rate regime that does not seek to fix the exchange rate at any specific level. Exchange rate movements can directly impact exporters and importers of goods and services. An appreciation of the Thai baht can impact the price competitiveness of Thai exporters, because it increases Thai export prices compared to those of competitors. In addition, it also reduces exporters’ income in baht terms. (Figure 1). At the same time, however, a stronger baht can benefit importers, allowing them to purchase foreign goods and services at lower cost. Although the key exchange rate used by exporters and importers is the Thai baht per US dollar (USDTHB), the Nominal Effective Exchange Rate (NEER) calculated by the BOT is used instead in EIC’s financial conditions index. As the NEER measures the trade-weighted value of the baht relative to the currencies of Thailand’s key trading partners, it thus serves as an indicator for the price competitiveness of Thai exporters relative to major trading partners. For this reason, the NEER can offer a more comprehensive description of exchange rate conditions than the baht per US dollar rate alone. Indeed, in September 2019 the NEER strengthened by as much as 21.98% over the previous 5 years, while the baht per US dollar ratio only rose 6.87% over the same period.

Figure 1 : A stronger baht impacts the price competitiveness of Thai exporters and reduces exporters’ incomes in baht terms.USDTHB, NEER and REER Thai exports, seasonally adjustedUnit : Index Unit : baht per 1 USD Unit : Jan 2017=100, 3MMA, SA

Source : EIC analysis based on data from CEIC and MOC

Note : export growth calculated from seasonal adjusted series

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NEER REER USDTHB (RHS)

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%Change from beginning of 2014

NEER REER

+5.6% +6.87% USDTHB

2019 2017 2018

Unit: %YOY 2017 2018H1 2018H2 8M19 2017-2019M8

CAGR

Total (ex. Weapon) in USD 9.8 11.9 2.5 -3.3 4.3

Total (ex. Weapon) in THB 6.0 1.5 1.2 -4.7 -1.1

USDTHB average(+/- = depreciate/appreciate)

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Figure 2 : When stock prices rise, households that own stocks see their wealth increase, prompting them to consume more. Private consumption and SET indexUnit : %YOY Unit : %YOY

Source : EIC analysis based on data from NESDB and The Stock Exchange of Thailand

3) Stock market returns and corporate bond spreads : Stock market returns are another important variable included in most financial conditions index studies , because they can affect economic activities in two important ways. The first way is through the wealth effect, which refers to a situation where higher stock prices lead to greater wealth among households that own stocks, prompting them to consume more (Figure 2). The second channel is via the cost of capital. That is, when stock price rises, firms can raise funds in the stock market at lower cost, thanks to the resulting decline in the share of future divi-dends compared to the firms’ market value. As a result, firms tend to raise more funds when stock prices increase (Figure 3). In addition, corporate spread is another key determinant of financial conditions. It represents investors’ perception of a bond issuer’s ability to service its debt. If investors believe that the ability has deteriorated, they will demand a higher yield from the corporate bond (credit risk premium) in order to compensate for higher credit risk. This will increase the corporate’s funding cost through bond issuance, which will in turn discourage private investment. For EIC’s financial conditions index, the credit spread of corporate bonds with an A rating was used, as the A-rate group constitutes the largest share of corporate bonds outstanding in the market, totaling 50% as of 23 September 2019 (Figure 4).

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AAA, 4.8%

AA, 18.8%

A, 49.9%

BBB, 12.6%

BB, 0.4%

B, 0.0% unrated, 13.6%

Figure 3 : When stock prices rise, corporates can raise funds in the stock market at lower cost, leading them to raise more funds.

Figure 4 : Corporate bonds with an A-rating constitute the largest share of corporate bonds outstanding in the market, totaling 49.9%.

Private equity issuance and the Thai Stock Exchange Index

Proportion of corporate bond outstanding divided by credit rating

Unit : million THB

Unit : %

Unit : %YOY

Source : EIC analysis based on data from The Bank of Thailand and The Stock Exchange of Thailand

Note : Private equity issuance includes only common stock.

Source : EIC analysis based on data from ThaiBMA (Data as of 25 September 2019)

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Private equity issuance (4 quarter moving average)

SET index (RHS)


5) Uncertainties and confidence in the global financial market Apart from domestic financial variables, outlooks and risks in the global financial market also affect Thailand’s financial conditions. External variables that EIC also considers is the CBOE’s Market Volatility Index (VIX), which serves as an indicator of investor confidence in the global financial market in most research. The rise in VIX reflects higher volatility in the US stock market, negatively effecting investor confidence. Investor confidence in the global financial market can affect Thailand’s financial condition through various channels. For example, when confidence in the market is high while risk is low(risk-on), investors will demand investment in risky assets includ-ing emerging market assets. Therefore, capital inflows to the Thai financial market are usually observed. On the other hand, when risks in the global financial market heighten, such as from impacts of an intensifying trade war, investor confidence will be lower (risk-off). There will usually be capital flows out of risky assets.

4) Corporate fund raising and bank creditsIn addition to the price-side variables listed above, additional financial condition determinants include the quantity of bank loans and corporates’ ability to raise funds, which can have a tremendous impact on economic activities. They reflect liquidity in the financial market and various players’ ability to leverage. During economic up-cycles, households and corporates will demand more credit to finance investment and expansion. While households only rely on borrowing from commercial banks, corporates can borrow either from commercial banks or from the bond and stock markets. When the amount of bank loans rises or when corporates find it easier to borrow from markets, financial conditions will be more accommodative. In contrast, financial conditions will tighten when commercial banks raise their lending standards or when corporates have difficulties raising funds in markets, which could result from heightened credit risk or reduced market liquidity. Over the past three years, the bond market has become more central to Thailand’s corporate funding activities. According to data from the Thai Bond Market Association (ThaiBMA), as the policy rate has remained low for a prolonged period of time, the cost of funding through corpo-rate bond issuance (represented by corporate bond yields) has also been exceptionally low, prompting corporates to persistently increase their borrowing in the bond market (Figure 5). Indeed, corporate bonds outstanding have continued to grow at faster rates than corporates’ borrowing from commercial banks3.

Figure 5 : The persistently low policy rate has meant low funding costs for corporates through bond issuance, prompting Thai corporates to borrow increasingly from the corporate bond market. As a result, corporate bonds outstanding have been growing at faster rates than corporate loans outstanding.

Corporate bond issuance, long-term corporate bond yield and policy rate

Growth of corporate bond outstanding and business loan

Unit : % Unit : billion THB (6MMA) Unit : %YOY

Source : EIC analysis based on data from ThaiBMA and The Bank of Thailand

3 Although the quantity of bank loans can serve as one indicator for financial conditions, it may not reflect overall demand for loans. Therefore, credit standards should also be considered. That is, if credit standards tighten, the quantity of loan issuance may fall behind actual demand for loans, suggesting a tighter financial conditions. Nevertheless, given limitations in data and statistical techniques, only loan quantity is currently included in the financial conditions index. In future studies, attempts will be made to include credit standards in the analysis of financial conditions.

5

25

45

65

85

105

125

1

1.5

2

2.5

3

3.5

4

4.5

5

5.5

6

Jan-

07

Oct

-07

Jul-0

8

Apr-09

Jan-

10

Oct

-10

Jul-1

1

Apr-12

Jan-

13

Oct

-13

Jul-1

4

Apr-15

Jan-

16

Oct

-16

Jul-1

7

Apr-18

Jan-

19

Avg. of Corporate spread for Group A (maturing in 3y)

Policy rate

Corporate bond issuance (RHS)

0%

10%

20%

30%

Jan-

15

Apr-15

Jul-1

5

Oct

-15

Jan-

16

Apr-16

Jul-1

6

Oct

-16

Jan-

17

Apr-17

Jul-1

7

Oct

-17

Jan-

18

Apr-18

Jul-1

8

Oct

-18

Jan-

19

Apr-19

Jul-1

9

Corporate bond outstanding (exclude financial sector)

Business loan outstanding

Total


Figure 6 : If investor confidence does not decrease sharply and at a fast pace (not a global risk-off), capital tends to flow into Thailand’s financial market but out of the financial markets of most emerging markets.Cumulative capital flows of Emerging Markets and Thailand during risk-off periodUnit : Billion USD Unit : Billion USD

Source : EIC analysis based on data from IIF

However, Thailand’s strong external stability acts as a buffer, causing capital to flow out of Thailand’s financial market to a lesser extent relative to other regional countries. In addition, if investor confidence does not decrease sharply and at a fast pace (not a global risk-off), investors will shift their funds from other regional countries to Thailand’s financial market. For example, when the current trade war heated up for the first time in June 2018, confidence and returns on risky assets declined globally. However, capital outflow from Thailand was observed to be less than other regional countries. Also, following announcements of the raising of US-China import tariffs in September 2018 and May 2019, capital flew into Thailand’s financial market but out of the financial markets of most emerging markets. (Figure 6)

Interpretation of the Financial Conditions Index and its relationship to the real economyFigure 7 shows Thailand’s Financial Conditions Index (FCI) calculated using the VAR model and the above financial variables. The index is normalized against the historical averages and standard deviations of each variable. A higher index means more accommodative financial conditions than the average of the study period (during 2002-2019). For example, FCI at +1 means that overall financial conditions are more accommodative than the historical average of about 1 standard deviation (S.D.).

-17

-12

-7

-2

3

8

13

-5

-3.5

-2

-0.5

1

2.5

4

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

The US announced the import tariff from China goods worth USD 50 billion at 25% (15 June 2018)

The US announced the import tariff from China goods worth USD 200 billion at 10% (18 September 2018)The US announced the import tariff from China goods worth USD 200 billion at 25% (5 May 2019)

Days since The US announced the import tariff from China

Dashed line = EM capital flows (RHS) Solid line = Thai capital flows

on Chinese

on Chinese

on Chinese


Figure 7 : Thailand’s Financial Conditions Index calculated using the VAR modelThailand financial condition index (FCI)Unit : Index


Figure 8 : It is necessary to consider factors other than the policy interest rate when assessing Thailand’s financial condition Thailand financial condition index (FCI) and policy rateUnit : Index Unit : %


-8

-3

2

7

12

Sep-

02M

ar-0

3Se

p-03

Mar

-04

Sep-

04M

ar-0

5Se

p-05

Mar

-06

Sep-

06M

ar-0

7Se

p-07

Mar

-08

Sep-

08M

ar-0

9Se

p-09

Mar

-10

Sep-

10M

ar-1

1Se

p-11

Mar

-12

Sep-

12M

ar-1

3Se

p-13

Mar

-14

Sep-

14M

ar-1

5Se

p-15

Mar

-16

Sep-

16M

ar-1

7Se

p-17

Mar

-18

Sep-

18M

ar-1

9

Commercial bank loans New Issuance of Private securities



Policy rate NEER

FCI

Easing financial conditions

Tightening financial conditions

0.00

1.00

2.00

3.00

4.00

5.00

6.00

-8

-6

-4

-2

0

2

4

6

8

10

12

Sep-

02

Apr-03

Nov

-03

Jun-

04

Jan-

05

Aug-

05

Mar

-06

Oct

-06

May

-07

Dec-

07

Jul-0

8

Feb-

09

Sep-

09

Apr-10

Nov

-10

Jun-

11

Jan-

12

Aug-

12

Mar

-13

Oct

-13

May

-14

Dec-

14

Jul-1

5

Feb-

16

Sep-

16

Apr-17

Nov

-17

Jun-

18

Jan-

19

FCI policy rate (RHS)


Effects on GDP as FCI tightens by 1 S.D.

1 quarter ahead -0.56 p.p.








Table 2 : Impacts on the Thai economy from tightened financial conditions

EIC has further studied the relationship between the FCI and Thailand’s GDP using the VAR(1) model to determine the direction and magnitude of GDP after a shock. The study suggests that if overall financial conditions tighten, the economy will slow down, with the highest impact seen in the first quarter following the shock. After that, effects will gradually decrease until completely subsiding within approximately two years (Table 2). EIC has also sum-marized the simulation in the event of changes in financial variables and impacts on the Thai economy (Table 3).

Weight in FCI of each variable

Weight in FCI of each variable

Effects on FCIEffects on GDP growth in 1 year

(ppt)

Growth of new corporate bonds/securities issuance 30.4% grow 3%QOQ 0.11 0.07

SET index 25.5% increase 3%YOY 0.14 0.09

Growth of banking credit outstanding 5.7% grow 3%QOQ 0.39 0.24

Average corporate spread of A-group corporate bonds with tenor 3-5 years 2.5% increase 0.1% -0.04 -0.02

Policy rate 4.2% increase 0.25% -0.05 -0.03

10-year government bond yield 5.5% increase 0.5% -0.08 -0.05

8.1%appreciate

3%YOY-0.48 -0.30

VIX index 18.0% increase 3 units -0.33 -0.21

Table 3 : Simulation in the event of changes in financial variables and impacts on the Thai economy (holding other variables constant)

The change in each variable

NEER


Stylized facts and implications on monetary policy implementation and business administration1) Although the policy rate was lowered, if other financial factors fail to respond to a change in the policy rate, this will not sufficiently help ease financial conditions. Impacts on GDP would thus be limited. The situations are as follows

• Changes in the policy rate alone while holding other financial variables constant, or when the effects of policy rate changes cannot transmit to other financial conditions indicators, such as when commercial banks remain cautious in lending, business confidence and financing ability remain low, or when the baht continues to strengthen, it will result in less accommodative financial conditions overall, resulting in limited impacts on GDP.

• Past examples were during 2011-2015 when the MPC decided to cut the policy rate continuous-ly from 3.50% to 1.50%. However, overall financial conditions in 2015 were still tighter than average during 2002-2019. This was due to a slowdown in lending and business funding during that period. In addition, the baht remained strong during the first half of 2015. This caused financial conditions to move in a different direction than the policy interest rate and tighten. Thus, GDP did not increase much in 2015, only expanding 3.1%. However, Thailand’s financial condition became accommoda-tive during 2016-2017, which was a supporting factor in GDP growing 3.4% and 4.0%, respectively.

• With regard to the impact of the 25-bps cut in the policy rate in the third quarter of 2019, EIC sees that as not appreciably helping ease financial conditions. This is due to slowing credit growth, a strengthening baht, and heightened external risks. Thus, further easing of Thailand’s overall financial conditions may not be possible, similar to what occurred to financial conditions during 2014-2015.

2) During the same period, the financial conditions of each business group may differ.

• Since 2018, although overall financial conditions in Thailand have been tighter, the financial condi-tions of large corporates are still accommodative, as corporates are still able to raise funds through corporate bond issuance despite a slowdown in business credit. Lower Thai government bond yields helps alleviate pressures from rising corporate spread from risks to the Thai economy. This results in


a largely stable return on corporate bonds (reflecting business funding costs through the bond mar-ket). EIC found that domestic corporate bond issuance since early 2019 until July 2019 amounted to 1.15 trillion baht, relatively high compared to corporate bond issuance in 2018 of 1.64 trillion baht.

• However, small and medium-sized enterprises (SMEs) and households still face tightening financial condi-tions due to a continuous slowdown in commercial bank credit growth, their major source of funding. This is partly a result of the BOT measure implemented in 2019 to curb risks to financial stability. Expansion of SME loans recorded 1.5% YOY and -0.1% YOY in the first and second quarter of 2019, down from 4.5% YOY at the end of 2018. Meanwhile, mortgage loan growth slowed from 9.1% YOY in the first quarter to 7.8% YOY in the second quarter, mainly due to the LTV measure implemented in the real estate sector.

3) Uncertainties and financial conditions of foreign countries have significantly affected Thailand’s financial conditions. Monetary policy implementation and business planning thus call for careful consideration of international situations.

• Thailand’s financial conditions have sharply tightened twice since 2002, both stemming from uncertainties in foreign countries, including the global financial crisis of 2008-2009 and during the third quarter of 2011 following the European debt crisis and the US credit-rating downgrade. These uncertainties and risks were reflected in a considerably higher VIX Index. Thailand’s financial market also experienced the impact, which resulted in lower investor confidence, capital flows out of emerging markets to safe-haven assets, and a sig-nificant drop in the Thai stock market index. Given escalating risks, business financing also became difficult.

• However, the BOT increased the policy rate around the same periods, which were in the third quar-ter of 2008 before the impact of the global financial crisis (GFC) became globally widespread, as well as in the first quarter until the third quarter of 2011. Impacts from tightening financial conditions were thus greater and intensified as shown in Figure 7. Therefore, monetary policy implementation and


business planning require careful consideration of external factors. The latest round of policy rate cuts is one good example. Not only is the domestic economy likely to expand at a lower rate than previously estimated, external risks are also likely to heighten, increasing the need for a policy rate cut. This will help preempt a rapid tightening of financial conditions which may cause the Thai economy to contract.

• For corporates, business planning also requires careful consideration of uncertainties in foreign countries. Even without any direct impact through trade channels, effects from uncertainties will be transmitted through confidence channels (VIX) and through a wealth effect from changes in asset values on the stock exchange (SET). Moreover, risks of a global economic slowdown will affect the Thai economic outlook, causing a rise in credit spread, a slowdown in commercial bank loans, and more difficult funding through the capital market.

4) Conducting monetary policy at this juncture is more challenging given the lower policy space. The use of other policy tools to ease financial conditions is thus necessary. These tools include the following :

• In previous economic cycles, the BOT had to cut the policy rate by a large amount and at a fast pace in order to ease financial conditions and boost economic growth. For example, during 2008-2009 the BOT cut the policy rate from 3.75% in the third quarter of 2008 to 1.25% in the second quarter of 2009. Continuous eas-ing of monetary policy before holding the policy rate constant at that level throughout the year, together with lower external risks in the later period, allowed the impact to pass through by easing other financial condition variables, such as stock market indices, private sector financing, and domestic bond yields. The FCI became accommodative, up from -6 in the first quarter of 2009 to around +2 by the end of 2009. This was in line with GDP growth resumption, going from -4.3% YOY (in the first quarter of 2009) to +5% YOY (at the end of 2009).

• However, the current policy rate of 1.5% leads to a limited capacity of monetary policy. The effectiveness of easing overall financial conditions and stimulating the economy may also be limited. The use of other monetary policy tools that would boost lending and funding through financial markets, and slow down the pace of baht appreciation, may thus be increasingly needed in order to ease overall financial conditions.

• In addition, a coordination of fiscal and monetary policies will be much needed. EIC believes that gov-ernment stimulus measures through credit measures such as emergency lending to help farmers facing drought, the provision of low-interest loans for both mortgages and SME loans, and TCG’s credit guarantee program will help increase business liquidity and boost confidence among commercial banks in lending. This will help ease financial conditions for this particular group in the period ahead.


Constructing a Financial Conditions Index for Thailand and Thailand’s financial conditions over the past two decades

Constructing a Financial Conditions Index EIC constructed the Financial Conditions Index for Thailand based on studies by Osorio, Longspurs and Upsal (2011), Ho and Lu (2013), and Chow (2013), using the following equation :

The above equation calculates the Financial Conditions Index of each period as the weighted average of the financial variables’ deviations from the mean, where selected financial variables used are public data of the Bank of Thailand, the Thai Bond Market Association, and the Stock Exchange of Thailand. The weight for each financial variable (wi) is calculated from a 2-4 quarter cumulated impact on each variable given change in GDP growth (using a cumulative impulse response on GDP after a shock in that variable), whilst EIC opted for Schwarz’s Bayesian information criterion (SBIC) to optimize lag length selection of the VAR(1) model.

Vector autoregression method has an advantage in accounting for both direct and indirect effects. For example, a central bank’s policy rate cut to ease monetary policy would stimulate the economy directly by lowering cost of borrowing. Simultaneously, a rate cut can also have an indirect impact on other financial variables that would in turn affect growth. That is, it lessens the attractiveness of Thai financial assets that prompt investors to leave for other markets offering higher yielding investments. Such a capital outflow would then put pressure on the Thai Baht to depreciate and in turn raise exporters’ Thai baht earnings. Given that, financial conditions when considering both direct and indirect impacts are thus additionally loosened than taking into account solely direct effects. By using a VAR model, both direct and indirect effects would be allowed for. Moreover, the model will also calculate the interdependent relationships between financial variables.

Whereby, FCIt denotes the Financial Conditions Index in period t xi denotes financial variables and xi denotes the mean of xi wi denotes the weight of xi


-4

-2

0

2

4

6

8

10

12

Mar

-03

Jun-

03

Sep-

03

Dec

-03

Mar

-04

Jun-

04

Sep-

04

Dec

-04

Mar

-05

Jun-

05

Sep-

05

Dec

-05

Mar

-06

Jun-

06

Sep-

06

Dec

-06

Mar

-07

Jun-

07

Sep-

07

Dec

-07

Thailand’s financial conditions in the past two decades

Between 2003Q3 to 2004Q2 Thailand’s financial conditions were exceptionally loose, in line with the Bank of Thailand’s policy rate that dropped to a historical low of 1.25%. Nonetheless, a closer analysis of the financial conditions index composition indicated that the low policy rate that helped ease business fundraising was merely complementary in loosening conditions. Rather, it was the business sector’s capacity to raise funding via the issuance of bonds and equity, as well as the significant growth of the value of Thailand’s stock market that were primary in creating accommodative financial conditions con-ducive to growth. On the contrary, in the following years the policy rate was gradually pushed upwards until reaching its peak of 5% in 2006. This caused the financial conditions index to fall below its mean (reflecting tightened financial conditions), the stock exchange index to under-perform compared to the preceding year, and financial asset issuance slowing as long-term government bond yields rose. Overall, Thailand’s financial conditions seemed to have tightened with the Bank of Thailand’s policy stance, how-ever due to relatively low external fluctuation (low levels of VIX) financial conditions did not tighten much.

Thailand’s financial conditions during 2003 to 2007


Unit : Index

ภาวะการเงินผอนคลายมากข้ึน

ภาวะการเงินตึงตัวมากข้ึน



-4

-2

0

2

4

6

8

10

12

Mar

-03

Jun-

03Se

p-03

Dec-

03M

ar-0

4Ju

n-04

Sep-

04De

c-04

Mar

-05

Jun-

05Se

p-05

Dec-

05M

ar-0

6Ju

n-06

Sep-

06De

c-06

Mar

-07

Jun-

07Se

p-07

Dec-

07

NEER

Policy rate

Long-term Thai government bond yields

VIX Index

SET Index

Avg. of Corporate spread for Group A(maturing in 3-5y)New Issuance of Private securities

Commercial bank loans

FCI


Thailand’s financial conditions tightened once again and became most critical between the end of 2008 and beginning of 2009. External risk stemming from the global financial crisis (GFC) was the main con-tributor, as the VIX soared to 40, exceeding the 2002-2019 average of 19 and reflecting an increase in global financial market uncertainty. External volatilities also impacted Thailand’s financial market, as the stock market index plummeted by 47.6% in 2008 and private sector fund raising activities fell. Despite a policy rate cut of 100 bps in the last quarter of 2008 in an effort to lower risk to the economy, Thailand’s financial condition did not ease. This was because long term Thai government bond yields remained high throughout 2008 as Thailand experienced capital outflows and U.S. Treasury bond yields rose. Such cir-cumstances highlight the fact that external risk can still have a profound impact on Thailand’s economy. Furthermore, the sharp increase in corporate spread also reflected worsening investor confidence in the business sector’s capacity to service debts. Financial conditions, however, eased once more in 2010 as the risk to global economies faded and the policy rate was brought down to its lowest level of 1.25% between May 2009 to June 2010. The stock market also recovered, recording a growth rate of 40% in 2010. These factors supported private sector fund raising activities in picking up around midyear 2010.



Unit : Index

-8

-6

-4

-2

0

2

4

Mar

-08

Jun-

08

Sep-

08

Dec

-08

Mar

-09

Jun-

09

Sep-

09

Dec

-09

Mar

-10

Jun-

10

Sep-

10

Dec

-10





-8

-6

-4

-2

0

2

4

Mar

-08

Jun-

08

Sep-

08

Dec-

08

Mar

-09

Jun-

09

Sep-

09

Dec-

09

Mar

-10

Jun-

10

Sep-

10

Dec-

10

NEER

Policy rate


VIX Index

SET Index



FCI


-6

-4

-2

0

2

4

Mar

-11

Jun-

11

Sep-

11

Dec

-11

Mar

-12

Jun-

12

Sep-

12

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13



Unit : Index

Thailand’s financial conditions in the third quarter of 2011 returned to tightening following continual policy rate hikes up until 3.50%. The rate hikes were a measure to combat rising core inflation (the rate used by the Bank of Thailand’s inflation targeting at the time), which exceeded its upper band of 2% in April 2011. However, this also caused bank lending to contract. Additionally, during the same period the stock market index fell by 6%YOY and continued to fall until the end of the year due to severe flooding in Thailand, with affected areas being declared disaster areas between the end of July and November 2011. Thailand’s stock market was also influenced by fluctuations in global financial markets, as shown by a VIX index that rose in August 2011 following the US credit rating downgrade from AAA to AA+ by the S&P, and the ongoing debt crisis in Europe that remains unresolved. Nevertheless, Thailand’s financial condition began to ease during the latter half of 2012 following the Bank of Thailand’s policy rate cut and the recovery of Thailand’s stock market and global financial markets. In the first quarter of 2013, however, further loosening of conditions paused as the baht sharply appreciated by of 13%YOY.





-6

-4

-2

0

2

4

Mar

-11

Jun-

11

Sep-

11

Dec-

11

Mar

-12

Jun-

12

Sep-

12

Dec-

12

Mar

-13

Jun-

13

Sep-

13

Dec-

13NEER

Policy rate


VIX Index

SET Index



FCI


Thailand’s financial conditions were generally tight during the second half of 2013 up until the end of 2015. This was due to a subdued stock market, with the index falling 17.5% between the first quarter of 2013 and the end of 2015. Private sector fund raising also contracted, whilst long term Thai government bond yields increased in part due to Thailand’s political crisis during the third quarter of 2013 and the third quarter of 2014. Nevertheless, Thailand’s financial conditions during this period were relatively less tight when compared to the period of the GFC and 2011, owing to reduced global financial market vol-atility and a low policy rate of 1.50% per annum.



Unit : Index

-3

-2.5

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15





-3

-2.5

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

Mar

-13

Jun-

13

Sep-

13

Dec-

13

Mar

-14

Jun-

14

Sep-

14

Dec-

14

Mar

-15

Jun-

15

Sep-

15

NEER

Policy rate


VIX Index

SET Index



FCI


During the latter half of 2016 up until 2017, Thailand’s stock market had only a slight influence on Thailand’s financial conditions as it was expanding close to its mean of 13%YOY. Thailand’s financial conditions at the time were relatively eased, however, due mainly to lower external risk and the policy rate being kept at a low 1.50% per annum. These factors supported bank lending in 2017 returning to an expansion of 2.1% per quarter, which exceeded the average growth rate of 1.76% per quarter seen between 2002 and 2019. Furthermore, Thailand long-term government bond yields that fell with the U.S. Treasurys yield curve and net capital inflow into the domestic bond market of THB 62 billion and THB 220 billion during 2016 and 2017, respectively, were also significant factors supporting the easing of Thailand’s financial conditions. Further additional supporting factors were low money market interest rates and a lowered corporate spread due to improved credit risk as the Thai economy recovered.

In 2018, the stock market became a central factor once more in leading Thailand’s financial condition to tighten as the stock market index dipped by 11% owing to external uncertainties that hurt investor confidence. A prolonged and escalating US-China trade war, an inverted yield curve hinting at a U.S. recession, and geopolitical risks such as Brexit and European politics, have all contributed to increasing global financial market volatility (VIX). On the domestic front, factors that contributed to tightening financial conditions were the Bank of Thailand’s policy rate hike in December 2018 that raised the rate to 1.75% from 1.50% per annum and LTV regulation that significantly curbed housing loans and slowed down bank lending growth. The Thai baht’s appreciation, another supporting factor, strengthened by up to 17% since 2016. Nonetheless, several external factors alleviated tightening pressure during the first half of 2018, including easing the monetary policy stance of the main economies and the lowering of U.S. Treasury bond yields that reduced long-term domestic government bond yields.



Unit : Index

-3

-2

-1

0

1

2

3M

ar-1

6

Jun-

16

Sep-

16

Dec

-16

Mar

-17

Jun-

17

Sep-

17

Dec

-17

Mar

-18

Jun-

18

Sep-

18

Dec

-18

Mar

-19

Jun-

19





-6

-4

-2

0

2

4

Mar

-11

Jun-

11

Sep-

11

Dec-

11

Mar

-12

Jun-

12

Sep-

12

Dec-

12

Mar

-13

Jun-

13

Sep-

13

Dec-

13

NEER

Policy rate


VIX Index

SET Index



FCI


2018

Shar

e (%

)20

1620

1720

18H1

/19

H2/1

920

1920

2020

1920

20

Real

GDP

grow

th%

YOY

3.4%

4.0%

4.1%

2.6%

3.1%

2.8%

2.8%

2.9%

3.1%

Dema

nd-si

de

Priva

te co

nsum

ption

51%

% YO

Y2.

9%3.

0%4.

6%4.

6%3.

7%4.

2%3.

2%3.

9%3.

4%

Publi

c co

nsum

ption

15%

% YO

Y2.

2%0.

1%1.

8%2.

2%1.

6%1.

9%2.

0%

Total

Inve

stmen

t24

%%

YOY

2.9%

1.8%

3.8%

2.6%

2.7%

2.7%

3.3%

2.8%

3.5%

Priva

te inv

estm

ent

18%

% YO

Y0.

6%2.

9%3.

9%3.

3%2.

4%2.

8%2.

7%

Publi

c inv

estm

ent

6%%

YOY

9.5%

-1.2

%3.

3%0.

7%3.

9%2.

2%4.

9%

Exter

nal s

ector

Expo

rt of

Goo

ds (U

SD)

% YO

Y0.

1%9.

5%7.

5%-4

.1%

-0.9

%-2

.5%

0.2%

-0.5

%3.

3%

Impo

rt of

Goo

ds (U

SD)

% YO

Y-5

.1%

13.2

%13

.7%

-3.1

%-3

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Kampon is the head of economic and financial market research team, analyzing Thailand, ASEAN, and major economies and financial markets. Prior to joining Siam Commercial Bank, Kampon was the head of economic team and an equity strategist in leading financial companies. He was also an Assistant Professor in the Economics Division at Nanyang Technological University in Singapore and held a position with Thailand’s Ministry of Finance.

Kampon earned a BA in Economics with honors from Chulalongkorn University, a MSc in Economics from the National University of Singapore (Asian Development Bank scholarship), and a Ph.D. in Economics from Michigan State University (Graduate school fellowship). During his Ph.D. study, Kampon also had an internship at the International Monetary Fund.

KAMPON ADIREKSOMBAT, PH.D.HEAD OF ECONOMIC AND FINANCIAL MARKET RESEARCH

Yunyong Thaicharoen is a First Executive Vice President of the Economic Intelligence Centre (EIC), a strategic unit of Siam Commercial Bank Public Company Limited (SCB). Prior to joining SCB, Yunyong was a Director at the Monetary Policy Department, Monetary Policy Group, Bank of Thailand which oversees overall monetary policy analyses and recommendations on interest rate, exchange rate, and capital flow policies. He also held the position of Director of the Capital Market Research Institute at the Stock Exchange of Thailand.

Yunyong is an expert on macroeconomics, monetary policy, and capital market. He frequently gives lectures to public seminars, as well as to organisations both domestically and abroad. Yunyong is also a special instructor at various academic institutions.

Yunyong holds a doctorate in economics, specialising in monetary policy and international economics, and a bachelor’s degree in economics from Massachusetts Institute of Technology (MIT) under a scholarship from the Bank of Thailand.

Krasae has experience in the area of macroeconomic analysis and forecast. He specializes in using quantitative models as a tool. He formerly worked as a researcher in the macroeconomic program at the Thailand Development Research Institute (TDRI). After that, he worked for the Fiscal Policy Office (FPO) as an economist. At the FPO, he was responsible for producing quarterly macroeconomic forecasts as well as public policy analyses.

Krasae received his Bachelor’s degree in Economics with a Quantitative Economics major from Chulalongkorn University. He was awarded a Royal Thai Government scholarship to pursue a Master of Science in Economics degree from University of Warwick, UK. He also received certificates for various training courses from the International Monetary Fund (IMF).

KRASAE RANGSIPOLSENIOR ECONOMIST

YUNYONG THAICHAROEN , PH.D.FIRST EXECUTIVE VICE PRESIDENTECONOMIC INTELLIGENCE CENTER

PANUNDORN ARUNEENIRAMARNSENIOR ECONOMIST

Panundorn has experiences in monitoring, analyzing and forecasting Thai economy. His expertise is to use econometric and economic model as a tool to evaluate economic events. Prior to joining SCB, he was an economist at Fiscal Policy Office, Ministry of Finance. His main responsibilities were policy impact assessment and macroeconomic forecasting.

Panundorn received his Bachelor’s degree in Economics (First Class honors with Gold Medal), majoring in quantitative economics from Chulalongkorn University. Afterwards, he was awarded from Royal Thai Government scholarship to achieve a Master of Philosophy in Economics degree from University of Cambridge, UK. Moreover, he also attained several training course certificates from International Monetary Fund (IMF) and Asian Development Bank (ADB).

Thanapol has experience in conducting research in the field of international economics and has worked on several empirical studies concerning the Thai economy, especially concerning micro-level analysis. His firm-level studies are related to international trade, foreign direct investment, and firm performance by utilizing applications from microeconometrics and business economics. Apart from academics, he had an internship experience at Siam Commercial Bank Asset Management (SCBAM) and the Bank of Thailand in the Monetary Policy Group during his undergraduate studies. He also worked as an information officer for the Tourism Authority of Thailand (Tokyo Office) during his studies in Japan.

Thanapol received a Bachelor of Arts (First Class Honors with Gold Medal Award) in Economics from Chulalongkorn University. He was awarded a Japanese Government Scholarship to pursue his graduate studies and received his Master of Arts and Ph.D. in Business and Commerce from Keio University, Japan.

THANAPOL SRITHANPONG, PH.D.SENIOR ECONOMIST

WACHIRAWAT BANCHUENSENIOR ECONOMIST

Wachirawat served as a senior economist at the Bank of Thailand. He was responsible for conducting research/analysis for the Monetary Policy Group. His main contribution was in the exchange rate policy strategy. Prior to that he served as a senior strategist at the Reserves Management department. His main responsibilities were formulating investment strategies and forecasting financial assets returns, e.g. EM exchange rates and bond yields. His expertise is in econometrics, forecasting, and optimization models. He also has research publication regarding term structures on PIER website.

Wachirawat received his Bachelor of Economics, International program (First class honor), from Thammasat University. He received Master of Science in Economics degree from University of Warwick, UK. He also received certificates for various training courses from the International Monetary Fund (IMF).

Dr. Sivalai has prior work experience in conducting research and analysis in economic, monetary, and fiscal policies as well as transport infrastructure at the Ministry of Finance, NESDB, and Department of Highways. She was also an advisory staff member for the Minister of Transport. Her research interests include entrepreneurship and financial market risks.

Dr. Sivalai received her Bachelor of Economics (First Class Honors) from Chulalongkorn University. She was awarded a Royal Thai Government Scholarship to pursue an MSc program in Policy Economics at the University of Illinois at Urbana-Champaign, USA and the World Bank Graduate Scholarship to pursue an MSc program in Economics at the London School of Economics, UK. She completed her doctorate degree in Applied Economics and Management at Cornell University, USA.

SIVALAI KHANTACHAVANA, PH.D.Senior Analyst

JIRAYU PHOTIRATANALYST

Jirayu previously worked as a research assistant for Environment Economic Research and teacher assistant for financial econometrics while studying. He also received award for his article from TDRI’s article competition Redesign Thailand. He was trained from Research Training Program from (RTP) faculty of economics, Thammasat University. In addition, He had an internship experience at Bank of Ayudhya.

Jirayu received his Bachelor’s degree Economics (Second-Class Honors) in Economics with a Monetary economics major from Thammasat University.

KUNYARUK NAIYARAKSAREEANALYST

Kunyaruk formerly worked as a research assistant for Economic Research and Training Center (ERTC), Thammasat University, with specialization on Foreign Direct Investment in Lao PDR. Prior to that, Kunyaruk worked with managerial accounting team at Mitsubishi Motors Thailand, where she was responsible for factory investment budget allocation and analysis.

Kunyaruk received her Bachelor of Economics, International program (Second class honor) from Thammasat University, and spent a year as an exchange student at Linnaeus University, Sweden.

JIRAMON SUTHEERACHARTิANALYST

Jiramon previously worked as an economic consultant at The World Bank in Macroeconomics & Fiscal Management before moving to Finance & Market department. She has experience in working on Thailand’s Economic Monitor and initiating development projects for CLMV countries. During her academic year, she had an internship with Office of the Auditor General of Thailand in Performance Audit Office.

Jiramon graduated from Thammasat University with Bachelor of Economics in International Economics Major.

PANG-UBON AMNUEYSITANALYST

Pang-ubon previously worked for the Revenue Department of Thailand as Tax Economist, her responsibilities were forecasting monitoring and analyzing tax revenue collection, setting up and monitoring tax revenue collection target, analyzing economics and business performance for tax revenue collection purpose and managing data for tax policy’s cost-benefit analysis. She also has experience in working on macroeconomics analysis and revenue forecasting using quantitative model and data analytics tools.

Pang-ubon graduated from Chulalongkorn University with Bachelor’s degree in Economics (Second-Class Honors) in Quantitative Economics. She was awarded a Royal Thai Government Scholarship to pursue a MSc. in Economics at University of Warwick, UK. In addition, she received certificates in ‘Effective and Efficient Use of Tax Incentives’ from Organization for Economic Co-operation and Development (OECD)

CHINNACHOD THAERAPANYAPORNANALYST

Chinnachod formerly worked as a research assistant for Human Resources Institute, Thammasat University with specialization on bureaucracy reform. During his academic year, he had an internship with Mizuho Bank (Bangkok Branch) in Treasury Operation Division, where he has experienced in foreign currency transactions.

Chinnachod graduated with Bachelor of Economics (First-class honor) in Monetary and Financial Economics from Thammasat University and he also received Certified Investment and Securities Analyst (CISA) level 1.

PULLAWAT PITIGRAISORNANALYST

Pullawat has prior working experience at Global Strategic Advisory Department of Mizuho Corporate Bank (Bangkok Branch) and internship experience as a Tax Trainee with PriceWaterhouseCoopers Thailand (Pwc Thailand). Pullawat also received the winner prize (Golden Medal) of the Jewel Crown Economic Challenge for University Student in 2014.

Pullawat received his Bachelor of Economics in Monetary Theory and Policy (First Class Honors) from Chulalongkorn University

SUPAWADEE CHINGNAWANMANAGEMENT ASSOCIATE

Supawadee previously worked as a teacher assistant for Macroeconomics while studying and has prior internship experience with Bank of Thailand, Monetary Policy Group. During her undergraduate years, she also received the first runner-up award of University Economics Competition 2014 held by Fiscal Policy Office.

Supawadee graduated from Chulalongkorn University with Bachelor of Economics (First-Class Honors) in Quantitative Economics and completed MSc programme in Management at London School of Economics, UK.

PONGSAKORN SRISAKAWKULANALYST

Pongsakorn formerly worked as teacher assistant for many lectures, including financial econometrics, international monetary economics and principle microeconomics. He also received award for his article in TDRI article competition. He was trained form Research Training Program (RTP) faculty of economic, Thammasat University. In addition, He had an internship experience in department of Investment management policy, The Securities and Exchange Commission (SEC)

Pongsakorn received his bachelor’s degree Economics (First-Class Honors) in Economics with a Monetary economics major from Thammasat University under a scholarship form the Bank of Thailand.

RATCHANON CHOTIPUTSILP ANALYST

Ratchanon’s research interests lie at the intersection of macroeconomics and empirical modeling. In particular, Ratchanon is interested in a research that bridge the gap between theoretical model and data using innovative empirical methods. He has experience working as an RA and TA at Thammasat University and spent several months at MIT as a research assistant.

Ratchanon received his bachelor’s degree and master’s degree in economics from Thammasat University in Theoretical and Quantitative economics (Second Class Honor). He also holds another master degree from The University of Chicago.

Economic Intelligence Center (EIC)E-mail : [email protected] Tel : +66 (2) 544 2953

Economic and Financial Market Research

Kampon adireksombat, [email protected]

Krasae [email protected]

Thanapol Srithanpong, [email protected]

Panundorn [email protected]

Wachirawat [email protected]

Kunyaruk Naiyaraksaree [email protected]

Jiramon Sutheerachart jiramon.sutheerachart @scb.co.th

Jirayu [email protected]

Chinnachod Thaerapanyaporn [email protected]

Pangubon [email protected]

Pongsakorn [email protected]

Ratchanon [email protected]

Knowledge Management & Networking Phanumard [email protected]

Krilerk Vallopsiri [email protected]

Piyanuch [email protected]

Poomisak [email protected]

Wanitcha Nateesuwan [email protected]

Worawan [email protected]

Sorodda [email protected]

Business Advisory

Pimjai [email protected]

Pattarawadee [email protected]

Phatranij [email protected]

Service Cluster

Pranida [email protected]

Nopphamas [email protected]

Pattharapon [email protected]

Pullawat [email protected]

Export Cluster

Chotika [email protected]

Kanyarat Kanjanavisut [email protected]

Kriskorn [email protected]

Nantapong [email protected]

Infrastructure Cluster

Supree Srisamran, [email protected]

Kamonmarn [email protected]

Punyapob [email protected]

Olan [email protected]

Energy and Resources Cluster

Sivalai [email protected]

Nattanan [email protected]

Puthita [email protected]

Apinya [email protected]

Yunyong Thaicharoen, PH.D.First Executive Vice [email protected]

Special issues:

สีสันการเลือกต้ังชิงตำแหน�งประธานาธิบดีหนี้เสียธนาคารอิตาลี ชนวนวิกฤติเศรษฐกิจไทยกับการกาวเขาสูยุคสังคมไรเงินสดSMEs ในธุรกิจบริการตางๆ

OutlookQuarter 1/2017

Special issues:

BOJ งัด Yield curve control

รับมือเศรษฐกิจ

เงินเฟอฟนตัว...ใครได ใครเสีย?

ฟองสบูอสังหาฯ จีน...เรื�องจริงหรือภาพลวงตา

การปรับปรุงโครงสรางภาษีเงินไดบุคคลธรรมดา 2017

ภาพรวมเศรษฐกิจป 2017

In Focus: มองเศรษฐกิจไทย ในยุค Trump นำโลก

สํารวจความเสี่ยงเศรษฐกิจสหรัฐฯจากมุมมองของตลาดหุนกู

ญี่ปุนกับการขึ้นภาษีการบริโภคป 2019

ผลกระทบของมาตรการกีดกันการคาระหวางสหรัฐฯ กับจีน ตอการสงออกไทย

จับตาความสามารถในการแขงขันของภาคการสงออกไทย

In focus:Special issues:

Quarter 1

3 ประเด็นนาสนใจสําหรับเศรษฐกิจไทยป 2019

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Thailand Financial Conditions Index...Outlook for Thai economy in 2019 and 2020 4 6 34 45 80 102...

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