Monthly economic update: August 2022
Executive summary
Global Economy
§ Jul PMIs data showed deteriorating situation in the manufacturing sector in Asia, Europe and America as concerns from lower global demands in upcoming period. Service PMI also lower across economies.
§ Commodity prices dropped due to global recession concerns. Only a rise in EU natural gas price observed, which energy crisis put EU economy at risk in coming winter.
§ Global growth 2022 and 2023 revised down to 3.2% and 2.9% respectively according to rising living costs and negative spillover from regional conflict.
§ US labor market fundamental remains strong. Consumption’s solid from durable products. Headline inflation slowed down after energy costs eased.
§ Euro zone business activity unexpectedly contracted. Inflation across the eurozone has reached a new all-time high of food and industrial products. Retail sales dropped significantly.
§ Chinese economy in Q2/22 showed the softest expansion since COVID19 crisis. China's annual inflation rate rose to 2.7% in July due to a surge in food prices. China's retail trade rose by 2.7% yoy in July 2022, missing expectation.
Domestic Economy
§ In Jun 22, Thai economy improved from the previous month as service sector continued to perform well in line with increasing foreign tourist figures.
§ Total export grew steadily, led by agricultural and agro-industry products but the industrial products showing slower demand. The major growth contributors are ASEAN and the US
§ Private consumption indicators slightly declined after accelerating in the preceding periods in accordance with high inflation concerns
§ Inflation in Jun22 continuing accelerated highest in nearly 40-year level from last month due to energy cost-push and more cost-transmitted effects
§ Private investment continuously rose in all categories. The import of capital goods rose dramatically in computer and parts, transformer and generator, more importantly, domestic machinery sales rose consecutively. Business sentiment improved with better order book and production.
§ Government has less room of stimulus package left for providing further support for Thai economy.
Financial Market
§ Major central banks around the world hiked policy rate to curb rising inflation. Federal reserve hike 75 bps on 26-27 July as expected, of which the size of next rate decision is in spotlight after decelerating recent headline inflation.
§ Investors went into long term bond tenor, for both US and Thai bond, due to recession concerns. Moreover, 10y-2y yield spread for US government bond dropped below zero, negative yield curve signal higher possibility of coming US economy recession. Meanwhile, 10y-2y yield spread for Thai government bond has declined but was still in positive territory.
§ USDTHB remained in high level in July, ending 36.3 level. It would be around 35.30-36.00 in August. Dollar would strengthen further from market expectations on faster rate hike from FED to combat US inflation. The strong dollar put pressure on Asian currencies together with negative real interest rate.
