BULLETIN MONTHLY ECONOMIC - May 2019
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MONTHLY ECONOMIC
BULLETIN May 2019
Krungsri Research
Global: Darkening sentiment
China
GDP data was steady in 1Q19 but growth composition
was less impressive and momentum is slowing.
Business activity and credit growth slowed in April,
underlining need for further monetary policy easing.
PBOC continues to provide more liquidity to banks to
lend to the economy while controlling lending rates.
Europe
Precarious recovery as activity surveys
US
and labour market conditions cross paths. Japan
Growth composition was weak in
Potential US auto tariffs – major Trump urged Abe to end tariffs on US
1Q19, but surge in productivity
headwinds for EU auto industry but farm goods, but this is unlikely to
growth lifts long-term upside
limited impact on GDP as a whole. happen ahead of Upper House Election.
potential.
Spain election: Results point to a Hung Overall minimal impact from US hiking
Fed shows no bias towards rate hikes
Parliament but this did not stop the tariff on vehicles, but sizable impact on
or cuts, upbeats on growth as
economy from outperforming Eurozone. activities in auto sector.
downside risks moderate, downplays
BOJ strengthens clarification on
muted inflation.
forward guidance, shifting to ‘date-
contingent’ from ‘data-dependent’
approach.
Krungsri Research 2
IMF cuts global growth forecast for the fourth time, even
before trade tensions worsen
6.6 (6.6) 6.3 (6.2)
6.1 (6.2)
4.4 (4.5) 4.8 (4.9) EMs
4.5 (4.6)
3.6 (3.7) 3.3 (3.5) 3.6 (3.6)
2.9 (2.9) 2.3 (2.5)
1.9 (1.8)
1.8 (1.8)
1.3 (1.6)
1.5 (1.7)
0.8 (0.9)
1.0 (1.1) 0.5 (0.5)
2018E 2019F 2020F
Note: ( ) previous forecast Unit: %
Source: IMF World Economic Outlook (April 2019), Krungsri Research
Krungsri Research 3
Trade tensions re-escalate
The US recently announced it would raise tariffs on USD200bn in Chinese goods from 10% to 25% effective 10 May, and has threatened to impose
25% tariffs on additional USD300bn in Chinese goods. There will be a public hearing on the latter on 17 June. In response, China is hiking tariffs on
USD60bn in US goods from 5-10% to 5-25% effective 1 June. China said it will retaliate if the US imposes the fourth round of tariff hikes.
Round 1 Round 2 Round 3 Round 4
Affected Affected Latest Potential
25% tariffs
• $34bn effective • $16bn effective 5-10% tariffs, US 10 May 19 25% tariffs after this round US
• 6 Jul 18 • 23 Aug 18 effective 24 Sept 18 China 1 June has $40bn left to impose tariff
US tariffs on Chinese goods Additional Additional
Tariff rates
$34bn $16bn $200bn rise to $300bn
25% tariff 25% 10% tariff 25% 25% tariff
China tariffs on US goods
Tariff rates
$34bn $16bn $60bn rise to $44bn
25% tariff 25% 5-10% 5-25% 25%
Affected Chinese goods: Chemicals, plastics and Several kinds of Chinese goods ranging from Consumer products: garment and leather,
Aircraft, vehicles and parts, rubbers, electronics agricultural products such as fruit, to consumer toys, milk, animal product, electronics e.g.
industrial machinery, (IC, semiconductor), goods such as furniture and luggage, industrial and mobile phone, laptop, steel and
semiconductor, electrical metal product, electric intermediate goods such as chemicals. aluminum, excluding pharmaceuticals,
appliances equipment (e.g. selected medical goods, rare earth
electric motor). materials and critical minerals
Affected US products: Chemicals, fuel (Oil and Food, chemicals, LNG, machinery, telecom, The rest of US products imported by
agricultural products gas and coals), semiconductor devices, machinery, mechanical China. The list will be updated later.
(soybean and beef, frozen petroleum, plastic appliances, lasers, wood, optical and medical
meats and fish, seafood, product, medical instruments
vegetable and fruit), vehicles device,
Source: USTR, FMPRC, MOFCOM, EU, CNBC, Nikkei Asian Review, The Japan Times, Reuters, Bloomberg, Krungsri Research
Krungsri Research 4
China and US growth hit by tariff hikes; Asia may see long-
term gain from trade diversion and production relocation
Impact of US-China tariffs (round 1 to 3) on World GDP
(% deviate from baseline)
0.20 0.14
0.10 0.03 0.03 0.03 0.04
0.00 0.00 0.00 0.00 0.01 0.01 0.01 0.01 0.01 0.02 0.02 0.02 0.03 0.03
0.00
-0.10 -0.04
-0.20 -0.11
-0.30
-0.28
-0.40
Impact of US-China tariffs (round 1 to 3) on World Exports
(% deviate from baseline)
2.00 1.06 1.11 0.74
1.00 0.20 0.24 0.02 0.28 0.01 0.33 0.29 0.10 0.09 0.39 0.23 0.27 0.42 0.22
0.00
-1.00 -0.41 -0.14 -0.12
-2.00
-3.00 -2.47
-4.00 -3.50
-5.00
Mexico
EU
India
South Korea
USA
Japan
Indonesia
Canada
China
World
Philippines
Oceania
Hong Kong
Taiwan
Laos
Malaysia
Vietnam
Singapore
Latin America
South Africa
Thailand
Cambodia
Note: The database incorporates the updated tariff for all countries.
Source: Global Trade Analysis Project (GTAP), Krungsri Research
Krungsri Research 5
Thailand’s most export destinations hurt by supply chain
disruption and global slowdown, except the US
Although the net impact on Thai exports would be positive at +0.39%, most would come from opportunities to export to the US. This would be
driven by substitution effect and relocation of production to Thailand, although there is no certainty in these factors and it would take time to bear
fruit. Indeed, due to supply chain disruption and economic slowdown in China and the US, there could be adverse impact on Thailand’s shipments
to most of its trading partners, led by South Korea, Japan, Hong Kong, China, and Taiwan.
Impact of US-China tariff (round 1 to 3) on Thai exports by destination 10.87
4.00 (% deviate from baseline)
3.50
3.00
2.50
2.00
1.50
1.00
0.39
0.50 0.21 0.28
0.00
-0.50 -0.11 -0.06
-1.00 -0.64 -0.57
-0.93 -0.84 -0.82 -0.79 -0.75 -0.73
-1.50 -1.07
-1.28 -1.24 -1.15
-2.00 -1.76 -1.69 -1.61
-2.50
World
EU (10.0)
USA (11.2)
Oceania (4.9)
South Africa (1.1)
Malaysia (4.6)
Mexico (1.1)
Cambodia (3.0)
Japan (9.9)
Taiwan (1.6)
Vietnam (5.1)
Singapore (3.7)
Philippines (3.1)
Hong Kong (5.0)
China (11.9)
Laos (1.6)
Indonesia (4.0)
Latin America (3.2)
South Korea (1.9)
India (3.0)
Canada (6.0)
( ) % Share of Thai exports in 2018
Note: The database incorporates the updated tariff for all countries.
Source: GTAP, Krungsri Research
Krungsri Research 6Thai exports would benefit in only few countries, but
losses would be broad-based by sector and destination
Impact of US-China tariffs (round 1 to 3) on Thai exports by sector and destination (% deviate from baseline)
Latin America
South Korea
South Africa
Philippines
Hong Kong
Singapore
Cambodia
Indonesia
Malaysia
Vietnam
Oceania
Canada
Mexico
Taiwan
China
Japan
India
Laos
USA
EU
Sector
Electronic & computer equipment -0.840 -0.670 -0.280 -0.405 -0.751 -0.275 -0.064 -0.288 -0.191 -0.132 -0.104 -0.092 -0.139 -0.098 -0.031 -0.096 -0.005 -0.009 -0.039 5.379
Chemical, rubber, plastic products -0.413 -0.377 -0.243 -0.251 -0.167 -0.456 -0.286 -0.042 -0.139 -0.066 -0.122 -0.240 -0.062 -0.168 -0.118 -0.017 -0.009 -0.006 0.137 0.430
Machinery and equipment -0.191 -0.163 -0.487 -0.263 -0.096 -0.247 -0.361 -0.071 -0.170 -0.505 -0.111 -0.228 -0.261 -0.137 -0.264 -0.102 0.007 -0.076 -0.304 1.034
Textiles, apparel and leather -0.116 -0.154 -0.202 -0.181 -0.067 -0.137 -0.246 -0.159 -0.100 -0.061 -0.174 -0.056 -0.062 -0.117 -0.079 -0.111 -0.102 0.020 -0.188 1.034
Wood products -0.100 -0.043 -0.025 -0.007 0.023 -0.015 -0.015 -0.009 -0.019 -0.009 -0.014 -0.024 -0.004 -0.006 -0.013 -0.003 0.016 0.009 -0.011 0.291
Other non-metallic mineral products -0.017 -0.004 -0.004 -0.001 -0.001 0.016 0.035 0.000 -0.003 0.025 -0.007 -0.004 -0.007 -0.007 0.004 0.001 0.001 0.003 0.134 0.023
Manufacturing nec. -0.010 -0.037 -0.070 -0.057 -0.009 0.063 -0.002 -0.123 -0.064 -0.001 -0.013 -0.008 -0.008 -0.018 -0.005 -0.018 -0.041 -0.002 0.006 1.993
Fabricated metal products -0.008 -0.016 -0.081 -0.008 -0.011 -0.062 -0.190 -0.009 -0.071 -0.113 -0.050 -0.033 -0.014 -0.045 -0.021 -0.009 0.001 0.007 -0.029 0.388
Basic metals -0.006 -0.090 -0.026 -0.016 -0.068 -0.036 -0.050 -0.002 -0.064 -0.005 -0.026 -0.020 -0.029 -0.045 -0.018 -0.001 0.008 0.003 0.000 0.033
Motor vehicles -0.003 0.001 -0.005 -0.002 -0.004 0.012 0.043 0.006 0.071 -0.023 -0.019 0.034 -0.001 0.061 0.063 0.269 0.014 0.077 0.050 0.036
Other transport equipment -0.002 -0.027 -0.012 -0.010 -0.003 -0.006 0.011 -0.017 -0.015 -0.044 -0.022 -0.015 -0.003 -0.035 -0.065 -0.027 -0.017 -0.002 -0.052 -0.009
Energy 0.000 0.003 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Paper products 0.014 -0.005 -0.003 -0.029 -0.007 -0.001 0.001 -0.001 -0.009 -0.003 -0.005 -0.011 -0.010 -0.014 -0.003 0.001 0.001 0.000 0.003 0.013
Food & beverages 0.020 -0.082 -0.203 -0.143 -0.035 0.011 0.039 -0.016 -0.038 0.098 -0.052 -0.015 -0.024 0.010 0.001 0.013 -0.037 0.015 0.460 0.341
Petroleum 0.035 -0.002 -0.001 -0.010 -0.002 0.000 0.007 0.001 0.001 0.021 0.001 -0.013 -0.038 -0.016 0.002 0.000 0.002 0.001 0.100 0.003
Agriculture 0.493 -0.002 -0.018 -0.112 -0.027 0.000 -0.006 -0.006 0.000 0.005 -0.011 -0.017 -0.011 -0.008 -0.020 -0.002 -0.024 -0.010 0.011 -0.004
Total -1.282 -1.762 -1.691 -1.612 -1.238 -1.148 -1.068 -0.932 -0.841 -0.819 -0.785 -0.745 -0.732 -0.645 -0.572 -0.106 -0.060 0.209 0.283 10.873
Source: GTAP, Krungsri Research Note: The database incorporates the updated tariff for all countries.
Krungsri Research 7Potential US auto tariffs: Another risk to global economy,
hinder growth at major automakers, e.g. EU and Japan
Timeline
Timeline for Section 232 process for US Auto import restrictions
18 May 18: After president
Under Section 232 17 Feb 19: 18 May 19: decides on action, 14 Nov 19:
of the Trade Approve extension is possible
Department of President must if the White House Impose
Expansion Act Commerce
1962, an make a decision holds negotiations restriction on
privately on tariff - when with the EU imports if there is
investigation on
submitted to US and what action no new trade
Automobile Rejected
president to take agreement
imports was No further action
launched
required
270 day later 90 day later Decide 180 day later
Recent development
Section 232 of the Trade Expansion Act 1962 is a US law that allows the President to impose import
Share of auto exports to US market
restrictions if there is a threat to national security, without needing approval from congress. It was in 2018 (%)
invoked on 23 Mar 2018 to propose tariffs on all steel and aluminium imports into the US.
China Other
The latest investigation is focused on US Auto imports as that contribute to half of US trade deficit. It South 3.7
was launched on 18 May 2018 by the US Department of Commerce to study whether the imports Korea 5.9
were a threat to US national security. On 18 Feb 2019, a report was submitted to President Trump 6.2
Mexico
indicating that automobile & parts imports were potentially a threat to national security and
30.6
recommended the action to be taken. The details were not disclosed, but it is believed the Japan
recommended action was to impose 10-25% tariff on auto imports. 17.1
President has until 18 May to decide whether to approve the recommendation, and what action to
Canada EU
take. Once Trump decides to act, his counterpart would have 180 days to negotiate a trade agreement
17.5 19.1
with the US to receive exemption.
Mexico and Canada are likely to be exempt from tariffs due to the USMCA agreement. Other largest
importers of US cars that will be affected by tariffs are EU, Japan, South Korea and China.
Source: Federation of American Scientists (FAS), Bloomberg, Krungsri Research
Krungsri Research 8Spillover is limited as world output will drop by only
0.01%, while the US will be hardest hit
We calculated the impact of higher tariffs on automobiles & parts imported into the US - 25% (worse case) and 10% (likely case). We maintain tariffs
for Canada and Mexico due to the USMCA agreement. Our results suggest limited impact on world GDP in the worst case scenario, at 0.012%. US
would be hit most by the tariff hike because raising prices of imported automobiles & part would raise prices of final goods in the US. This would
affect domestic consumption by lowering real purchasing power for other products. Imported parts contribute to final goods in the automobile
sector, at about 47%. For other countries, Japan, Korea, Malaysia and EU would see the largest (albeit also limited) impact on GDP and exports
because of large exposure to the US market. However, we would monitor the impact of falling market confidence triggered by trade uncertainties.
Marginal effect of an increase in US auto tariff on GDP and exports (% deviate from baseline)
0.02 10% tariff increase 25% tariff increase
GDP
0.01
0.00
-0.01
-0.02
-0.03
-0.04
-0.05
World USA Japan Korea Malaysia EU_28 Tiwan Philippines Thailand Singapore Indonesia Laos Cambodia China Vietnam
Exports
0.00
-0.10
-0.20
-0.30
-0.40
-0.50
-0.60
EU
Laos
China
World
Philippines
USA
Malaysia
Singapore
Indonesia
Vietnam
Korea
Tiwan
Thailand
Japan
Cambodia
Source: GTAP, OECD, Bloomberg, Krungsri Research
Krungsri Research 9US: Growth composition was weak in 1Q19, but surge in
productivity growth lifts long-term upside potential
%, ppt GDP growth QoQ saar % YoY Nonfarm Business Productivity
PCE
6.0 7.0
Business Fixed Investment Productivity growth 5-year moving average
Government consumption 6.0
Inventories 5.0
4.0
Net exports
4.0
2.0 3.0
2.0
1.0
0.0
0.0
-1.0
-2.0
Mar-95
Mar-96
Mar-97
Mar-98
Mar-99
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
Krungsri Research’s view
Strong growth GDP components (% QoQ saar)
Modest/Moderate 1Q19 GDP growth rose to 3.2% saar from 2.2% in 4Q18, beating 2%
2Q18 3Q18 4Q18 1Q19 consensus estimate. The surprise strong reading was led by net trade
Contraction
8.7 9.3 9.3 (added 1.03ppt to GDP), inventories (+0.65ppt) and the unusual surge in
highway & street construction spending, which will all reverse in the coming
5.4
3.8 3.5 3.7 quarters. Consumption only grew 1.2%. Business investment grew 2.7% led
2.51.2 2.5 2.7 2.5 2.6 2.4 1.8 2.0 by investment in intellectual property products.
Growth composition was weak but long-term potential growth is decent.
-0.4 -0.6 Business productivity growth surged 2.4% YoY in 1Q19, the strongest since
-1.3
-3.6-4.7-2.8 -3.7 the financial crisis and much higher than 1.0% average over the past five
-4.9
years. We may be witnessing a broader transformation in the supply side of
the economy, reflecting tight labour markets. We are more optimistic of the
Private Residential Non- Government Exports Imports potential for a sustainable recovery in productivity growth driven by the
Consumption Investment Residential Consumption adoption of a new wave of technologies that will increase efficiency across
Investment large swathes of the economy.
Source: Bureau of Economic Analysis (BEA), Bureau of Labor Statistics (BLS), Bloomberg, Krungsri Research
Krungsri Research 10Fed shows no bias to rate hikes or cuts, upbeats on growth
as downside risks moderate, downplays muted inflation
% Fed policy rates Key notes from FOMC Meeting on 30 April – 1 May
2.50 The FOMC voted unanimously to leave target fed funds rate at 2.25-2.50%,
Effective fed funds rate as widely expected. The committee also cut interest rate on excess reserves
2.25 Mid-point of target range (IOER) by 5bps to 2.35%.
IOER While the accompanying statement was dovish, Fed Chair Jerome Powell
2.00
sounded more upbeat during the press conference. The statement
In past weeks, the effective fed downgraded descriptions for household spending and business fixed
1.75 funds rate exceeded the mid- investment growth as “slowed”, and acknowledged that headline and core
point of the target range. inflation “have declined and are running below 2%”.
1.50
Powell noted the FOMC does not see a strong case for moving rates in
1.25 either direction. Three notable elements were:
▪ (i) He described the economy as “on a healthy path” and supported by
Jan-18
Jan-19
Feb-18
Mar-18
May-18
Jun-18
Jul-18
Aug-18
Dec-18
Sep-18
Feb-19
Mar-19
May-19
Apr-18
Oct-18
Nov-18
Apr-19
“solid underlying fundamentals”. He also noted downside risks to the
outlook from earlier in the year “have moderated somewhat”.
▪ (ii) He emphasized that core inflation “actually ran pretty close to 2% for
% PCE inflation much of 2018” and attributed the recent decline largely to “transitory
2.2 factors” influencing categories such as portfolio management and
Dallas Fed trimmed mean apparel. To overlook these transitory factors, Powell pointed to the
2.0 Dallas Fed trimmed mean measure, currently at around 2%, which is a
much better guide to the underlying inflation trend.
1.8
▪ (iii) He noted that the IOER cut was a “small technical adjustment” and
1.6 does not reflect a loosening of the policy stance. This should bring
effective fed funds rate closer to the mid-point of the target range again.
1.4
Core PCE inflation The Fed is downplaying weak inflation, which reduces the chance of a rate
1.2 cut. We typically follow the Fed’s guidance, which means we do not see a
rate hike this year. Although the Fed continues to signal its intended
1.0 normalization is underway (one more hike in 2020), renewed trade tensions
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
Oct-18
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
Jan-18
Jul-18
Jan-19
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Apr-19
could take rate hikes off the table, and we now expect fed funds rate to
stand pat up to the end of 2020.
Source: Board of Governors of the Federal Reserve System, Federal Reserve Bank of Dallas, Bloomberg, Krungsri Research
Krungsri Research 11Europe: Precarious recovery as activity surveys and labor
market conditions cross paths
The latest GDP data and labour market indicators are encouraging but the timelier survey indicators remain weak, suggesting recovery will be unsustainable.
Eurozone GDP growth ticked up more than expected to +0.4% QoQ sa from +0.2% previously. The expenditure breakdown of the national data suggests
domestic demand was the key growth driver in Eurozone. Germany’s GDP grew by 0.4%. Italy’s recession has ended as GDP grew by 0.2%. Growth inched up
in Spain to +0.7% (from +0.6%), and was stable in France at +0.3%. Meanwhile, the region’s unemployment rate fell to 7.7% in March, the lowest since
September 2008. Given these, the trend of income creation – a product of average wage growth and employment – is favourable. On the other hand,
Composite PMI data fell again in April, while sentiment indicators continued to deteriorate.
Eurozone GDP growth DI Eurozone GDP vs Business Surveys % YoY
3.0 60 4.0
% QoQ sa % YoY
2.5 GDP growth (RHS)
2.0 55 2.0
1.5
ECB “potential growth”
1.0 50 0.0
0.5 Composite PMI (LHS)
0.0 45 -2.0
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
Jan-18
Jul-18
Jan-19
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
Strong growth GDP growth (% QoQ sa) % Eurozone labor market conditions % YoY
Modest/Moderate 6 Negotiated Unemployment rate 4.0
Contraction
2Q18 3Q18 4Q18 1Q19
7 wage (RHS) (reverse order) 3.5
0.7
0.6 0.6 8 3.0
0.5 0.5
0.4 9 2.5
0.3 0.3 0.3
0.2 0.2 10 2.0
0.1
0.0 11 1.5
12 1.0
-0.1 -0.1 13 0.5
-0.2
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Germany France Italy Spain
Source: Eurostat, Markit, Bloomberg, Krungsri Research
Krungsri Research 12Potential US auto tariffs – major headwinds for EU auto
industry but limited impact on GDP as a whole
Impact of 10% tariff on EU Share of auto exports to US market in 2018 (%)
(% deviation from baseline) France
1.3 4.3
Other
0.13 ROW Austria 1.5
Finland 2.2
-0.12 -0.005 Hungary 2.5
-4.00 US Spain 2.7
Slovakia 3.7
Germany
Sweden 4.4
-0.25 49.1
EU Italy
10.9
-36.89 UK
17.5
Auto exports to Total auto Total exports GDP
US exports
Krungsri Research’s view
To quantify the impact of auto tariffs, we outline two plausible scenarios:
Impact of 25% tariff on EU imposing 10% or 25% tariff on EU auto imports.
(% deviation from baseline) Our study shows 10% and 25% tariffs would shave off one-third and two-
0.25 ROW thirds of EU auto exports to the US. The impact is sizable but moderate in
terms of total EU auto exports (-4% and -7.25%, respectively). The US
-0.21 -0.009 market accounted for 11% of EU auto exports in 2018. Germany would be
hurt most because half of EU auto exports to the US comes from there.
-7.25 US Meanwhile, there is small negative spillover effect: car and parts trade
within the EU could drop by 0.25% and 0.45%, while EU auto exports to
ROW would rise by 0.13% and 0.25%. All in, the net impact on total EU
exports would be only -0.12% and -0.21%.
-0.45 EU As for the impact on GDP, the tariffs would have limited impact in the
-66.78
longer term (-0.005% and -0.009%). However, the long-run equilibrium
Auto exports to Total auto Total exports GDP would involve shifting resources from auto industry to other sectors of the
US exports economy, a process that would take time. Thus, the near-term impact
would be substantial for the EU economy, especially now when the
economy is slowing and affected by Germany’s car policy.
Source: ITC trade map, Global Trade Analysis Project (GTAP), Federation of American Scientists (FAS), Capital economics, Krungsri Research
Krungsri Research 13Spain election: Results point to a Hung Parliament but this
did not stop the economy from outperforming Eurozone
Parliamentary seats won by party
# Seats 0 25 50 75 100 125 150 175 200 225 250 275 300 325 350
2019 42 123 38 57 66 24
2016 57 85 39 32 137
Unidas Podemos (Far-left) Socialist Party (Centre-left) Smaller parties Ciudadanos (Centrist) People's Party (Centre-right) VOX (Far-right)
% YoY 2019 GDP Growth consensus forecast Krungsri Research’s view
2.4 Spain’s general election results were in line with expectations. No party won a
Spain majority, and a centre-left coalition seems the most likely outcome. While the
2.2 Socialists and Podemos together only won 165 seats in parliament, they could
2.0 secure the 176 needed for a majority with support from smaller parties –
including moderate nationalists from the Basque Country. That means acting
1.8 PM Pedro Sánchez and his centre-left coalition would not need to rely on the
1.6 two Catalan pro-independence groups and a radical Basque separatist group.
Eurozone This likely scenario could reduce the risk of Catalan secession. So it seems more
1.4 likely that there could be an arrangement to grant Catalonia greater autonomy
rather than a push for another independence referendum.
1.2
On the other hand, if a government is not formed after two months, there
1.0 could be another election. Even if coalition negotiations drag on, this is unlikely
Jul-18
Mar-19
Jan-18
Feb-18
Mar-18
May-18
Jun-18
Aug-18
Sep-18
Nov-18
Dec-18
Jan-19
Feb-19
Apr-18
Oct-18
Apr-19
to have much economic impact. Spain has experienced persistent political
uncertainty in recent years but the economy still registered strong growth.
Despite a series of growth downgrades for Eurozone as a whole, economists
remain confident Spain would be resilient as growth outlook is relatively stable.
Source: POLITICO, Capital Economics, Bloomberg, Krungsri Research
Krungsri Research 14China: GDP data steady in 1Q19 but growth composition
was less impressive and momentum is slowing
% GDP growth Strong growth Growth by major sectors (% YoY)
8.0 Modest/Moderate
Contraction
2Q18 3Q18 4Q18 1Q19
% YoY % QoQ saar
7.5 8.7
8.1 8.0
7.3 7.0 7.0
7.0 6.4 6.8
5.9 5.76.1 6.3 6.3 6.3
6.4 5.86.0
6.5 4.3 4.0 4.2 4.1 4.3 4.0
6.0 5.6 2.0
2.5
5.5
5.0 Manu- Trans- Hotels & Wholesale & Real Financial
facturing portation Catering Retail Trade Estate Services
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
Contribution to GDP growth (ppt) Krungsri Research’s view
Final consumption Gross capital formation Net exports 1Q19 GDP data paints a complicated picture. On one hand, real GDP growth
was steady at 6.4% YoY. But there are signs of trouble. First, sequential
0.1 0.1 0.1 growth was 5.6% QoQ saar, the lowest since 1Q16, suggesting economic
2.7 0.5 momentum continues to weaken. Second, growth was led by net exports
2.5 1.3 2.1 2.1 2.1
3.0 2.4 2.0 1.5 which contributed 1.5ppt to growth, the largest since 4Q17. The increase is
3.3 3.3 1.3
0.8 almost entirely due to falling imports. Third, domestic demand remained
1.7 weak. Consumption expenditure contributed less to overall growth than in
5.2 5.1 5.5 5.3 5.3 5.0 the previous quarter (at 4.2ppt from 4.6ppt). Investment was also subdued
3.8 3.9 4.3 4.6 4.2
3.5 3.1 as gross fixed capital formation contributed sub-1ppt to growth.
On the other hand, supply-side GDP data was firmer than demand suggests.
-1.0 -0.4 -0.3 -1.0 -0.6 -0.7 -0.6 Manufacturing is picking up, growing 6.1% YoY. The services industry
remains the fastest growing sector at 7% YoY, albeit slowing from 7.4%. But
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
most of the slowdown was attributed to Transportation sector. Financial
Services and Wholesale & Retail Trade continued to recover.
Source: National Bureau of Statistics (NBS), Bloomberg, CEIC, Krungsri Research
Krungsri Research 15Business activity and credit growth slowed in April,
underlining the need for further monetary policy easing
DI Official PMI data % YoY Aggregate Financing (Outstanding) % YoY
Construction
64 15 Bank loan 60
62
60 Total financing
10 50
58
56 Corporate bond &
Services Equity financing
54 5 40
52
50
Local government bond issuance (RHS)
48 Above 50 = expansion, below 50 = contraction Manufacturing 0 30
Jan-18
Dec-18
Jan-19
Feb-18
Mar-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Feb-19
Mar-19
Apr-18
Oct-18
Nov-18
Apr-19
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
Jan-18
Jul-18
Jan-19
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Oct-18
Apr-19
DI Official Manufacturing PMI Krungsri Research’s view
54 Official PMI data for all three sectors – Manufacturing, Services and
Construction – rose above the 50-threshold concurrently for the second
52 Large firms straight month. Expansion moderated except for small manufacturers
Medium firms
(improving towards 50), likely responding to the targeted monetary
50 easing implemented earlier.
In line with this, credit growth has levelled off. Aggregate financing
48 growth dropped to 10.3% in April from 10.6% in March. Bank loan
growth edged down to 13.5% (from 13.8%). Other forms of credit
46 growth also slowed, e.g. corporate bond issuance and equity financing.
Small firms On the other hand, local government special bond issuance continued
44
to rise, but we remain cautious that the front-loading will fade later this
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Oct-18
Apr-19
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
Jan-18
Jul-18
Jan-19
year. Overall, the slowdown in credit growth underlines the need for
further monetary policy easing in order to keep credit expanding fast
Source: NBS, People’s Bank of China (PBOC), Krungsri Research
enough to provide a floor to economic growth.
Krungsri Research 16PBOC continues to provide more liquidity to banks to lend
to the economy while controlling lending rates
% Required Reserve Ratio (RRR) CNY, trn Credit flow (12-month rolling sum)
22 10
Non-Financial Corporate
20 9
Major banks 8
18
7
16 Household
6
14 Small banks 5
12 4
10 3
Jul-16
Jul-17
Jul-18
Jan-16
Jan-17
Jan-18
Jan-19
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Oct-18
Apr-19
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
% Bank lending rate vs Interbank rate Krungsri Research’s view
10 The People’s Bank (PBOC) lowered required reserve ratio (RRR) for
selected small banks (around 1,000 rural banks) to 8% effective 15
8 May. The PBOC said the move will release RMB280bn of bank reserves,
Average bank lending rate one third of the net liquidity injection during the last RRR cut in
6 January.
This should feed through and further reduce average bank lending
4 rates. Loan demand, which has started to recover, will probably pick up
as a result. Combined with a relaxation in loan quotas, this will push up
2 bank lending in the coming months.
7-day repo rate
The PBOC had hinted that RRR cuts for small banks were on the horizon
0
even when trade talks were going well. Given renewed US-China trade
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
tensions and support from fiscal front-loading likely to wane, the PBOC
will continue to launch ‘targeted RRR cuts’ later this year.
Source: PBOC, Bloomberg, Krungsri Research
Krungsri Research 17Japan: Trump urge Abe to end tariffs on US farm goods,
but this is unlikely ahead of Upper House Election
Trump has urged Abe to end tariffs on US agricultural imports while threatening to raise tariffs on Japanese vehicles & part. Meanwhile, Abe has
continued to negotiate by highlighting the rising number of jobs created in the US by Japanese investment and attempted to push US to return to TPP
which gives more benefits to Japan. We see Japan will not soften its stance to lower tariffs ahead of the Upper House elections set for July. Moreover,
our calculation suggests modest positive impact from ending tariffs on US agricultural products. GDP and total production would only rise 0.01% in
the long-term due to better resource allocation. However, agricultural production would drop by 2.31% because consumers would switch to US
imports from domestic products.
Political and Diplomatic calendar Effect of reduction in import tariff for US agricultural products (%)
15-16 Apr Minister of State for Economic and Fiscal policy visit Household demand
14.06
to US to meet with USTR Representative for imports
Household demand
21 Apr Second round of local elections for domestic
-1.17
26-27 Apr PM Abe visits US to discuss trade negotiations Agricultural production -2.31
18 May Deadline for President Trump's trade policy decision
based on Article 232 (180 days extension if GDP 0.012
negotiation is in progress)
26 May President Trump visits Japan to meet the new Total production 0.019
emperor
28 Jun President Trump visits Japan to attend G20 Summit US imports from Japan (2015)
Others, 10
Petroleum & Coal , 2 Chemical,
21 Jul Upper House Election Basic metal, 2 Rubber,
Paper , 2 Plastic, 20
“The agricultural levies are unfair because we Transport
don’t tariff their cars” equipment, 7
Trump hoped trade talks would “go quickly” and
Electronic Food & Berverages
enable him to sign a deal when he visits Japan in equipment, 8 , 20
late May.
Agricultural
and fishing, 11 Machinery &
Source: GTAP, OECD, Bloomberg, Krungsri Research
Equipment , 18
Krungsri Research 18Overall impact of US tariff hike on vehicles will be
minimal, but sizable impact on activities in auto sector
Trump has threatened to raise tariffs on Japanese vehicles & parts to 25% because that forms the third-highest share of US imports. Moreover, vehicles
imported from Japan were mostly final products which generate limited domestic value-add in the US, at only 7.18%. We calculated the impact of a tariff
hike to 25% (worse case) and 10% (likely case). Our results show the worse case had limited impact on GDP, total production and total exports, reducing
those by -0.01%, -0.1%, -0.5%, respectively. But sector-wise, production and exports of vehicles & parts would drop more severely, by 7% and 13.5%,
respectively.
US automobile & parts imports (2015) Origin of value-add in final demand for US
Tiwan, 0.85 automobiles & parts (2015)
OTH, 1.91 Oth, 5.3 ASEAN, 1.3
Sub-Saharan Africa, 1.16
China, 2.44 Korea, 3.7
Korea, 6.25 Canada, 4.1
Canada, Mexico,
25.17 6.59
EU28, 18.49
Japan, 7.18
USA, 52.78
China , 7.37
Mexico, 24.03
Japan, 19.25
EU28, 11.68
Marginal effect of an increase in US auto tariff on variables (% deviate from baseline)
25% tariff increase 10% Automotive
GDP Total production Total export production Automotive export
0
-0.05 -0.005 -0.039
-0.006 -2 -3.150
-0.230
-0.15 -0.084 -4 -6.100
-6 -3.850
-0.25
-8
-0.35 -0.300 -10
-0.45 -12 -7.390
-0.55 -14
Source: GTAP, OECD, Bloomberg, Krungsri Research
Krungsri Research 19BOJ strengthens clarification on forward guidance, shifts to
‘date-contingent’ from ‘data-dependent’ approach
%
GDP growth
% Core CPI Krungsri Research’s view
1.4 1.7 The BOJ has nudged down GDP growth forecast for 2019
Oct' 18
and 2020 to 0.8% and 0.9%, respectively. Meanwhile, the
Jan' 19
1.5 first provision of GDP forecast in 2021 is 1.2%.
1.2 Apr' 19
Also, the BOJ cut its inflation outlook for the fourth time.
1.3 Looking ahead, inflation is projected at 1.6%, suggesting it
1.0 will not meet the 2% target through 2021.
1.1
While keeping policy rate, BOJ tweaked the wording of its
0.8
0.9
forward guidance. Previously, it pledged to keep rate at
current low level for an “extended period” due to concerns
0.6 0.7 about overseas economies and the effect of tax hike set
2019 2020 2021 2019 2020 2021 for October. It added “least through around spring 2020”
to its statement, reflecting a change from state-contingent
Economists’ forecast for policy ETF & REIT Purchase over 12 months guidance to date guidance. However, the tweaked
rate (%) guidance meant little to markets. Economists already
110 7
0.02 0.01 REIT (bn) forecast BoJ would maintain policy rate until 2020 before
100
0.00 6 this latest meeting.
90
Median Recently, BOJ’s REIT purchases have slowed significantly.
-0.02 80 5
70
This reflects its concerns about risk of overheating in the
-0.04 -0.04 -0.05 -0.05 4 property market, in line with our view.
60 ETF
-0.06 (tn,RHS) To support efficient monetary easing, the BOJ expanded
-0.08 -0.06
50 3
-0.08 eligible collateral for bank credit (for example, company
-0.09 40 BOJ introduced more
-0.1
flexible approach in 2 debts which have obtained external credit ratings must be
-0.10 30
pace of purchases rated ‘BBB’ or higher by an eligible rating agency),
Average 20 1
-0.12 promote use of the fund-Provisioning Measure and relax
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
terms and conditions for Securities Lending Facility. The
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
1Q21
2Q21
3Q21
BOJ also introduced ETF lending facility which allows it to
Source: BOJ, Bloomberg, Krungsri Research temporarily lend its ETF holdings to market participants.
Krungsri Research 20Thailand: Roaring headwinds
Economic conditions eased in March, pressuring 1Q19 growth
Private consumption growth slowed for the second consecutive month in March. Spending on non-durable goods reversed to a
contraction, possibly due to a marked drop in farm income. Other spending categories continued to expand. Private investment
shrank for the second month. Investment categories registered declines except imports of capital goods.
On external demand, exports fell more than expected in March as China-bound shipments slumped again. The tourism sector was
also subdued. Foreign tourist arrivals fell in March. The major drag was inbound tourists from Europe and the Middle East, and to
a lesser extent, Chinese tourists. Tourist arrivals from India continued to show a promising trend.
1Q19 GDP growth likely below 3%; we are trimming full-year growth forecast
Given the noticeable slowdown in January-March data, we expect 1Q19 GDP growth to slip below 3% YoY, posing substantial
downside risk to our full-year forecast of 3.8%. Political uncertainty after the election had affected domestic activity – this is likely
to persist until a new government is in place, possibly in June. We will trim growth projections after 1Q19 GDP readings are
released on 21 May.
Inflation was stable in April as easing food inflation offset rising transportation cost
Headline inflation was steady in April. Food & Beverage inflation eased and snapped a 3-month streak of rise. All sub-indices for
food subsided, except prices of Vegetables & Fruits which surged driven by the ongoing drought. Energy prices continued to rise.
Core inflation picked up for the first time in three months. Key driver was CPI for Public Transportation Services which jumped
because of an increase in bus fares in Bangkok. Coupled with rising energy inflation, these lifted Transportation & Communication
inflation to a 5-month high. Meanwhile, CPI for other core components were relatively unchanged.
BOT holds rates steady as growth stutters; we do not see a strong case for rates to move in either
direction this year
As universally anticipated, the Monetary Policy Committee (MPC) has voted unanimously to keep policy rate at 1.75%, citing
economic growth would be “slower than previously expected” as global and domestic uncertainties “remain high”.
Intensified global and domestic uncertainties, weaker growth outlook, and muted inflation, will take hikes off the table for the
next 12 months. Meanwhile, it is not appropriate to raise rates when other central banks in emerging economies have started to
unwind previous tightening measures. On the other hand, the MPC’s continued concerns over risks in the financial sector means
it is unlikely to cut rates this year. Hence, we maintain that rates will be stable the rest of the year.
Krungsri Research 21Krungsri Research Forecast
Krungsri Research Forecast 2016 2017 2018 2019F
GDP growth YoY (%) 3.4 4.0 4.1 3.8
Private Consumption Expenditure YoY (%) 2.9 3.0 4.6 4.1
Government Consumption Expenditure YoY (%) 2.2 0.1 1.8 2.2
Private Investment YoY (%) 0.6 2.9 3.9 4.6
Public Investment YoY (%) 9.5 -1.2 3.3 5.5
Nominal Exports in USD (f.o.b.) * YoY (%) 0.1 9.8 7.2 3.5
Nominal Imports in USD (f.o.b.) YoY (%) -5.1 13.2 14.3 6.0
Current Account Balance USD, bn 48.2 50.2 35.2 30.7
Tourist Arrivals YoY (%) 8.9 8.8 7.5 7.5
Headline Inflation YoY (%) 0.2 0.7 1.1 1.1
Core Inflation YoY (%) 0.7 0.6 0.7 0.9
Exchange rate (end of period) THB/USD 35.25 32.66 32.42 31.00
Policy Interest rate (end of period) (%) 1.50 1.50 1.75 1.75
Dubai crude price - period average USD/bbl 41.5 53.1 69.3 66.5
* Our 2019 growth forecast for customs-based exports is 3.7%
Source: NESDC, Bank of Thailand (BOT), Ministry of Commerce (MOC), Ministry of Tourism and Sports (MOTS), Bloomberg, Krungsri Research
Krungsri Research 22Domestic demand is losing momentum as mounting
political uncertainty weighs on sentiment
% YoY Private spending indicators Private spending: categories
8.0 Consumption Private spending indicators 2018 2019
(% YoY) * J F M A M J J A S O N D J F M
6.0 Private consumption
Non-durables
4.0 Semi-durables
Durables
2.0 Services
Non-residents expenditure
0.0 Private investment
Construction area permitted
-2.0 Investment Construction material sales
Imports of capital goods
-4.0 Machinery sales
Jan-16
Jul-16
Jan-17
Jul-17
Jan-18
Jul-18
Jan-19
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Oct-18
Apr-19
Newly registered vehicles
* Green > 0%, Red < 0% / Darker green (red) indicates stronger (weaker) momentum
Index Sentiment indicators Index Krungsri Research’s view
84 Consumer confidence (LHS) 54 Private consumption growth slowed for the second
82 53 consecutive month, to +2.57% YoY in March (vs +3.51% in
February). Spending on non-durable goods reversed to a
80 52 contraction (-0.77% YoY from +2.65% in February) possibly
78 51 due to a marked drop in farm income (-4.0% YoY). Other
76 50 spending categories continued to expand. Private investment
shrank for the second month, by 2.12% YoY. All investment
74 Business sentiment 49 categories registered declines except imports of capital goods
72 48 which jumped 8.45% YoY after falling 5.48% in February.
70 47 Political uncertainty after the election had affected private
Jan-16
Jul-16
Jan-17
Jul-17
Jan-18
Jul-18
Jan-19
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Oct-18
Apr-19
sector sentiment and hence, domestic activity – this is likely
to persist until a new government is in place, possibly in June.
Source: BOT, University of the Thai Chamber of Commerce (UTCC), Krungsri Research
Krungsri Research 23Less favourable household income conditions will
pressure domestic demand in 2Q19
Farm income and non-farm wage data are highly seasonal, so it is best to focus on 12-month moving average data to gauge the underlying trend.
On this basis, farm income growth edged down to +1.05% YoY in March (from +1.55% in February), driven by falling prices and slower output
growth (especially rice). Non-farm wage growth dropped to +1.46% YoY from +1.52% previously, dragged by sectors related to exports and
tourism (Manufacturing, Accommodation and Food Services). The less favourable income conditions could pressure domestic demand growth in
2Q19, which is consistent with our expectation that economic growth will be stuck at around 3%.
% YoY Farm income (12mma) Farm income growth Weight 2018 2019
(% YoY, 12mma)* J F M A M J J A S O N D J F M
15 Rubber 16.27%
White rice 9.97%
10 Mango 7.66%
Swine 7.27%
5 Hommali 7.03%
Sugarcane 7.03%
Fowl 6.57%
0
Glutinous rice 6.41%
Cassava 5.40%
-5 Shrimp 3.97%
Mar-17
Jul-17
Mar-18
Jul-18
Jan-17
Feb-17
May-17
Jun-17
Aug-17
Sep-17
Nov-17
Dec-17
Jan-18
Feb-18
May-18
Jun-18
Aug-18
Sep-18
Nov-18
Dec-18
Jan-19
Feb-19
Mar-19
Apr-17
Oct-17
Apr-18
Oct-18
Apr-19
Oil palm 3.68%
Maize 3.02%
* Green > 0%, Red < 0% / Darker green (red) indicates stronger (weaker) momentum
% YoY Non-farm wage (12mma) Average monthly wage Share 2018 2019
2.0 (% YoY, 12mma)* J F M A M J J A S O N D J F M
Wholesale & retail trade 16.70%
1.5 Manufacturing 16.51%
Accommodation & food service 7.55%
1.0 Construction 5.55%
Transportation & storage 3.32%
0.5
Financial & insurance 1.39%
0.0 Information & communication 0.56%
Real estate 0.51%
-0.5 Electricity, gas, steam 0.31%
Mar-17
Jul-17
Mar-18
Jul-18
Jan-17
Feb-17
May-17
Jun-17
Aug-17
Sep-17
Nov-17
Dec-17
Jan-18
Feb-18
May-18
Jun-18
Aug-18
Sep-18
Nov-18
Dec-18
Jan-19
Feb-19
Mar-19
Apr-17
Oct-17
Apr-18
Oct-18
Apr-19
Water supply 0.23%
Mining & quarrying 0.18%
* Green > 0%, Red < 0% / Darker green (red) indicates stronger (weaker) momentum
Source: BOT, Office of Agricultural Economics (OAE), National Statistical Office (NSO), Krungsri Research
Krungsri Research 24Fresh stimulus to shore up growth during a Hung
Parliament, but we see modest impact from tax perk
State Welfare Card Scheme (Budget approved: THB13.2bn)
Services or products through EDC App or cash withdraw from ATM
1,160,000 4,100,000 2,700,000 14,500,000
Disabled persons: farmers: parents: low income:
THB1.16bn THB4.1bn THB1.35bn THB6.6bn
Additional allowance for all To purchase fertilizer, To purchase school uniforms, Increase ceiling of welfare
disabled persons of THB200 pesticide, and other farm educational material (on top scheme to purchase
per month for five months input. of current free education necessary goods.
(May – Sep 19). One-time cash aid of scheme). Additional THB200-300 aid,
THB1,000 per person One-time cash aid of THB500 to take total to THB500 per
per child. month for two months.
Uniforms, sports Otop products Books and e- Domestic tourism Houses or condos Double
equipment, (30 Apr – 30 books (1 Jan – Main cities (up to worth up to 5 deduction for
textbooks for Jun 19) 31 Dec 19) THB15,000 and million baht (Apr investment at
students second-tier 30 – 31 Dec) point of sale, e-
provinces (up to tax
Up to THB15,000 Up to THB15,000 Up to THB15,000 THB20,000) Up to THB200k
Tax measures (Budget approved: THB8.62bn)
Source: Cabinet resolution, Krungsri Research
Krungsri Research 25Exports slump in March after temporary tailwinds fade,
pressuring full-year export growth forecast
Strong growth Exports by major destination (% YoY)
Modest/Moderate Krungsri Research’s view
Contraction
Jan-19 Feb-19 Mar-19
Exports slumped in March after temporary tailwinds fade
8.3 7.4
5.9 5.0 Merchandise exports tumbled 4.9% YoY after surging 5.9% in
0.9 2.8 0.6 0.3 February, taking YTD growth down by 1.6% YoY. March reading was
weaker than our and market expectations (-0.6% and -3.3%,
-1.5 -0.4 respectively). Shipments to major destinations, especially China and
-1.4 -2.8
-4.9 -3.7 ASEAN5, saw steeper declines, adding to evidence the global
-5.7
-9.0 -7.4 slowdown is intensifying. Shipments to the US fell for the first time in
-10.6 -11.4 eight months, probably because the benefits of trade diversion
-16.7 -15.6 triggered by the US-China trade dispute have waned as the two
countries are close to signing a trade deal.
Total *US EU27 Japan China ASEAN5 CLMV Electronics exports continued to decline as the sector is feeling the
exports (11.1%) (9.9%) (9.9%) (12.0%) (15.5%) (11.6%) effects of both cyclical and structural headwinds (US tariff hike; SSD is
gradually replacing HDD). Exports of oil-related products continued to
* Exports to the US exclude arms and military weapons drop. Meanwhile, exports of rubber products continued to surge due
to accelerating shipments before USMCA takes effect. Motor vehicle
Exports by major product (% YoY) and parts exports showed promising growth driven by rising demand
Jan-19 Feb-19 Mar-19 from Vietnam. Exports of frozen chicken remained robust, supported
by rising demand from Japan and the EU (after granting larger import
14.8 quota), which pushed up exports of processed food.
9.7 9.0
5.6 5.2 6.7 5.2 Weak export performance YTD is pressuring full-year export and
1.5 GDP growth forecasts
-1.3 -0.2 -0.8 The slump in March data proved us correct – we had said the surprise
-2.0 -3.4
-5.6 -5.8 surge in February export data was driven by temporary factors and the
-8.6-10.2 -9.6 -7.2
underlying trend for exports remained weak. Looking ahead, we
-15.3 expect Thai exports to recover the rest of the year, notably in 2H19.
-17.1
Signs of a global recovery are piling up as sentiment has improved
Agricultural Processed Electronics Automobile Electrical Plastic Rubber substantially following significant progress in US-China trade
products foods HDD, IC & parts appliances products products negotiations and a remarkable dovish turn by central banks around
(9.7%) (8.4%) (15.5%) (14.5%) (9.9%) (5.4%) (4.3%) the world. However, the weak YTD performance and expected gradual
recovery could pose downside risks to our 2019 growth forecasts for
Note: ( ) share in 2018 customs-based exports (+3.7%) and GDP (+3.8%).
Source: MOC, Krungsri Research
Krungsri Research 26Opportunities for Thai swine exports following ASF
outbreaks overseas
Thailand is at high risk of a African Swine Fever (ASF) outbreak after cases were reported in many areas in China, Vietnam and Cambodia. On April 9, the
cabinet approved THB148.54m budget to implement measures to prevent and prepare for an outbreak; it is that the top of the national agenda to
strengthen disease prevention strategies and increase exports of pork and related products to countries that are experiencing shortages.
ASF outbreaks and backyard pig distribution Negative Impact on Thailand
Hazard : ASF is a fatal (Broad Infection and
Severe Damage )
animal disease that
affects pigs and wild Swine If there is an ASF outbreak in Thailand, the Department
boars with up to 100% Industry of Livestock Development, Ministry of Agriculture and
mortality rate Cooperatives estimate damage will be as follows:
Transboundary : can be - Swine industry:
spread by live or dead pigs, ➢ 30% output loss: THB21.17bn
pork products, feed or ➢ 50% output loss: THB35.28bn
contaminated objects ➢ 80% output loss: THB56.45bn
➢ 100% output loss: THB70.56bn
Damage : serious production - Exports of swine and related products: THB50bn
and economic losses.
Supply - Animal food industry: THB40bn
Affected countries : Chain - Swine medical supplies industry: THB2.1bn
- China (31 provinces, 1.02m Industry - Wholesale & retail and other supply chains
Outbreak
Point pigs culled)
Government - Budget for disease prevention and control: THB15.9bn
- Mongolia (6 provinces, 3,115
Expense - Other damages (such as cost of professional
pigs culled)
USD, m Thai swine exports USD, th - Vietnam (24 provinces, rehabilitation and well-being of farmers): THB19.6bn
89,600 pigs culled)
3.0 60 Krungsri Research’s view
- Cambodia (1 province, 2,400
2016 2017 2018
2.5 50 pigs culled) Because the ASF outbreak is under control in Thailand, the
1Q18 1Q19 New outbreaks reported by Kingdom has enjoyed rising demand from countries that are
2.0 40 the FAO during 12 - 25 April suffering from supply shortage, especially Hong Kong and
2019, in Ratanakiri province in Cambodia. We expect the situation to be contained and
1.5 30 Cambodia. Thailand should still benefit from rising exports and higher pork
prices. Pork prices are expected to rise to THB70-80 per kg
1.0 20 (from THB60-70 normally), which would generate THB47bn
Thailand : In April, the cabinet revenue annually for farmers.
0.5 10 approved Bt148.54m budget to
implement measures to If an outbreak occurs in Thailand, which is not our base
0.0 0 prevent an ASF outbreak assumption, the probability of damage would be slim (only 10-
Hong Kong Myanmar Cambodia (RHS) 20%) because most products come from large producers which
farms are provided with the EVAP system (high security).
Source: FAO, OAE, Department of Livestock Development, Ministry of Agriculture and Cooperatives, Krungsri Research
Krungsri Research 27Murky export outlook driven by shrinking imports of raw
materials and continued destocking
Strong growth Imports by major destination (% YoY)
Modest/Moderate
Jan-19 Feb-19 Mar-19 Krungsri Research’s view
Contraction
Imports rebounded in most categories, except raw materials.
17.8 Headline imports dipped 7.6% YoY in March. However, core imports
14.0
8.5
(excluding gold, aircraft, ship, arms) shrank only 1.3% YoY. Raw
4.8 4.7 material imports (excluding gold) continued to dip, suggesting the
1.5 2.4 4.0 4.4 4.8 4.4 3.5
near-term export outlook is dim. Imports of core capital goods and
consumer goods rebounded swiftly, while vehicle imports continued to
rise, suggesting domestic demand is still rising. Meanwhile, trade
-5.1 -7.4 surplus narrowed sharply to USD2.01bn from USD4.03bn in February,
-8.0-8.6
-10.0-7.6 after the temporary effects of weapon exports waned.
Industrial output continued to shrink. The Manufacturing Production
Total Fuel *Capital **Raw Consumer Vehicles Index slipped 2.54% YoY in March (vs -1.26% in February), following
imports lubricants goods materials goods (5.9%) overall weakness in both domestic and external demand. In line with
(16.9%) (24.2%) (35.6%) (11.1%) this, seasonally-adjusted Capacity Utilization dropped by 0.5ppt to
Note: ( ) share in 2018 * Capital goods exclude aircraft, ship ** Raw materials exclude gold 67.8%, the lowest since October 2017.
% sa Manufacturing production indicators % YoY Manufacturing Production Weight 2018 2019
72 Capacity utilization (LHS) 8.0 (% YoY) * J F M A M J J A S O N D J F M
Industrial production All industry 100.0%
70 6.0
Food & Beverages 19.9%
68 4.0 Automotive 13.9%
Petroleum 9.6%
66 2.0 Chemicals 9.2%
Rubbers & Plastics 8.9%
64 0.0
Cement & Construction 5.5%
62 -2.0 IC & Semiconductors 5.5%
Electrical Appliances 3.8%
60 -4.0 Textiles & Apparels 3.5%
Jul-16
Jul-17
Jul-18
Jan-16
Jan-17
Jan-18
Jan-19
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Oct-18
HDD 3.4%
* Green > 0%, Red < 0% / Darker green (red) indicates stronger (weaker) momentum
Source: MOC, Office of Industrial Economics (OIE), Krungsri Research
Krungsri Research 28Tourism sector was also subdued but extending visa-on-
arrival measure triggers hopes of a recovery
Foreign tourist arrivals Krungsri Research’s view
4.0 25 Foreign tourist arrivals fell 0.7% YoY to 3.47m in March, while
Million (LHS) % YoY
3.5 20 there was a larger drop in tourism receipts (-1.3% YoY to
THB184.45bn). The major drag was inbound tourists from
3.0 15 Europe, Australia and the Middle East, and to a lesser extent,
2.5 10 Chinese tourists. Tourist arrivals from India continued to show
2.0 5
a promising trend, rising 34.7% YoY to 163K.
Meanwhile, the government has extended fee waiver for visa-
1.5 0
on-arrival (VOA) by six months to end of October. Based on
1.0 -5 past experience, this measure should be successful in
0.5 -10 attracting globetrotters, especially those from countries
where visa application process takes time and there are
Jul-16
Jul-17
Jul-18
Jan-16
Jan-17
Jan-18
Jan-19
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Oct-18
logistical difficulties in reaching embassies, such as in India.
Strong growth Foreign tourist arrivals (% YoY)
Modest/Moderate Jan-19 Feb-19 Mar-19
34.7
Contraction 24.9
13.7 15.3 14.1
10.3 9.3 6.5 3.8 2.9
4.3 4.7 6.1
0.3 0.4 1.2 1.2
-1.9 -2.6 -0.4 -1.9 -1.3 -1.5 -2.1 -4.1
-7.8
-12.3 -14.1 -13.7
-22.3
China ASEAN5 Europe* North Asia** CLMV India Russia US Australia Middle East
(27.5%) (16.3%) (13.8%) (13.5%) (10.5%) (4.2%) (3.8%) (2.9%) (2.1%) (1.9%)
Note: ( ) share in 2018 * Europe excludes Russia ** North Asia excludes China
Source: MOTS, Krungsri Research
Krungsri Research 29Inflation was stable in April as easing food inflation offset
rising transportation cost
% Consumer Price Index: major categories
CPI Inflation
2.0
Consumer Price Index Weight 2018 2019
1.5 (% YoY)* J F M A M J J A S O N D J F M A
Core inflation Headline CPI 100.00%
1.0 Food & beverages 36.13%
0.5 Apparel & footwear 2.88%
Housing & furnishing 23.25%
0.0 Medical & personal care 6.22%
Transportation & communication 24.02%
-0.5 Recreation & education 6.13%
Headline inflation Tobacco & alcoholic beverages 1.38%
-1.0
Prepared food 17.02%
-1.5 Raw food 15.69%
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
Jan-18
Jul-18
Jan-19
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Oct-18
Apr-19
Energy 11.75%
Core CPI 72.56%
* Green > 0%, Red < 0% / Darker green (red) indicates stronger (weaker) momentum
Krungsri Research’s view
Headline inflation was steady at 1.23% in April (vs 1.24% in March), in line with our expectation (1.26%) and median consensus
estimate (1.20%). Food & Beverage inflation edged down to 2.20% YoY (vs 2.38% in March), snapping a 3-month streak of rise. All
sub-indices for food subsided, except prices of Vegetables & Fruits which surged 4.26% YoY (the largest rise since January 2017)
driven by the ongoing drought. Energy prices continued to rise by 2.33% YoY (vs 2.07% in March).
Core inflation (excluding volatile Raw Food and Energy components) picked up for the first time in three months to 0.61% (vs
0.58% in March), in line with our and market expectations. Key driver was CPI for Public Transportation Services which jumped
1.91% YoY (vs +0.29% in March) because of an increase in bus fares in Bangkok. Coupled with rising energy inflation, these lifted
Transportation & Communication inflation to a 5-month high of +1.06% YoY (vs +0.79% in March). Meanwhile, CPI for other core
components were relatively unchanged.
Looking ahead, we expect inflation to rise gradually supported by growing consumption and recent government measures to
nurture economic growth in mid-2019. The government has allocated a total budget of THB21.8bn, comprising THB13.1bn to help
Welfare Card holders and THB8.6bn in personal income tax deductions, to support domestic tourism and household consumption.
Hence, we are keeping our forecast for 2019 headline inflation at 1.1%.
Source: MOC, Krungsri Research
Krungsri Research 30BOT holds rates steady as growth stutters; we do not see a
strong case for rates to move in either direction this year
# Votes MPC policy rate decisions and voting results % Krungsri Research’s view
8 2.00 As universally anticipated, the BOT’s Monetary Policy Committee (MPC)
has voted unanimously to keep policy rate at 1.75%, citing economic
6 growth would be “slower than previously expected” as global and domestic
4 1.75 uncertainties “remain high”. MPC minutes will be published on 22 May.
MPC sees weaker growth outlook and inflation running close to lower
2 bound of target range. The accompanying statement remains dovish,
noting economic growth would be “softer than previously expected”.
0 1.50 Descriptions for merchandise exports, investment, and public spending
Votes for Action have been downgraded. The statement kept the characterization of
-2
Votes Against Action household consumption at “continued expanding” but was more cautious
-4 Policy rate (RHS) 1.25 on job creations, saying employment in the construction and export-
29-Mar-17
24-May-17
28-Mar-18
12-Dec-18
20-Mar-19
8-May-19
8-Feb-17
5-Jul-17
*20-Dec-17
14-Feb-18
*16-May-18
*20-Jun-18
8-Aug-18
19-Sep-18
*16-Aug-17
*27-Sep-17
*6-Feb-19
8-Nov-17
14-Nov-18
oriented manufacturing sectors showed “signs of moderation”. Inflation
Meeting
assessment was “largely unchanged” as rising energy inflation offset a
date
muted increase in food inflation. Given this, inflation was projected to be
“around” the lower bound of target range.
Note: * At least one MPC member was absent from the meeting MPC signals it would step up macroprudential measures. On financial
% instability risks, the committee pointed that “auto-related loans” had
Policy interest rates largely contributed to the rising household debt, which warrants closer
7.0 India
monitoring, on top of the frequently mentioned “saving cooperatives” and
6.0 Indonesia “the real estate sector”. To address these risks, the committee reiterated
“targeted” micro/macroprudential measures, while placing greater
5.0 emphasis on “debt serviceability of borrowers”.
Philippines
4.0 We do not see a strong case for MPC to cut or raise rates this year. The
MPC retained its “state-contingent guidance” but the guidance is less
3.0 substantive than before. That said, the committee would like to have
Malaysia
2.0 maximum flexibility to move in either direction. Intensified by global and
domestic uncertainties, weaker growth outlook and muted inflation will
1.0 South Korea take hikes off the table for the next 12 months. Meanwhile, it is not
appropriate to raise rates when other central banks in emerging
0.0
economies have started to unwind previous tightening measures. On the
Jan-16
Jul-16
Jan-17
Jul-17
Jan-18
Jul-18
Jan-19
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Oct-18
Apr-19
other hand, the MPC’s continued concerns over risks in the financial sector
means it is unlikely to cut rates this year. Hence, we maintain that rates
Source: BOT, Krungsri Research
will be stable the rest of the year.
Krungsri Research 31You can also read
