The world economy is gaining momentum; Positive structural changes afoot in Thai economy – CAA Weekly

Key highlights from the CAA Weekly Table

  • Global: With the US economy gaining momentum, the issue is not whether the Fed hikes in December but whether it will be forced to raise rates even more aggressively thereafter. The UK High Court ruling on Article 50 adds more uncertainty over Brexit, increasing currency volatility in Asia.
  • Is China really gaining support: ASEAN nations’ moves to forge greater cooperation with China do not mean that they are beholden to China, at America’s expense. Smaller powers will always strike a balance with larger powers in the region, so as to maximise leverage.
  • Signs of weakness in Asian economies despite stronger global economy: The Chinese economy is progressing well despite no fundamental resolution of risks. Continued weakness in credit growth could hold the Indian economy back. As Singapore companies face mounting debt woes, expect the economy to see further deterioration.

The world economy: Rising cyclical momentum and trade intensity – a positive for Asia

  • Global growth continues to display signs of strength marked by sustained improvements in the global composite purchasing managers index and rising trade volumes.
  • Diminishing cyclical headwinds are boosting external demand for Asian exports, but two key factors constrain the prospects of a longer-term trade recovery: First, the impending revival of capital spending. Second, the drag from structural headwinds to trade.
  • Trade could continue to falter in the long-term if capital spending does not recover sufficiently to outweigh the dampening effect of structural forces.

Thailand: Exports buoy short-term outlook; economic flexibility undergirds long-term growth

  • Even as the country mourns the death of revered King Bhumibol, the Thai economy continues to make strides in its economic upswing, led by export growth. Continued support from the government in terms of public sector expenditures on consumption and investment remains manifestly important.
  • As farm incomes rise, private consumption has remained robust. However, falling rice prices have dimmed consumer sentiment somewhat. There are also signs of a pick-up in investment in certain sectors as exports turn positive. Inflationary pressures are likely to be benign and increase only gradually, while the Thai Baht has stayed relatively unchanged in terms of REER. Monetary policy will remain accommodative without further easing.
  • Positive structural changes are afoot as the economy displays its great ability to spontaneously adapt and adjust to new realities. This economic flexibility puts Thailand in good stead in the long run.

For Complete CAA Asian Insights, Please Register here.