Economic and Financial Outlook July 2021

New Delta variant Covid 19 weighed down on economic outlook especially in Asian countries which has seen rising number of Covid 19 cases. Many countries rolled out stricter measures to curb the spread of Delta variant.
Global export growth continued . Developed economies such as US and EU displayed strong returns from low bases last year.
Rising inflation is a global issue. More than 60 countries around the world has seen inflation risen this year, mainly due to energy price. Inflation peaked in May in many countries.
U.S. labor market displayed improvement in June, adding 850,000 jobs, mainly in hospitality business. Meanwhile, European retail trade and industrial production increased strongly in May from low base impact.
Chinese economy grew 7.9 % in the second quarter, falling down from strong first quarter. Overall growth is projected to be above targeted 6 % Japan might struggle from weak domestic consumption as Covid 19 cases rose.

Overall, Thai economy as of May 2021 consecutively declined for the second straight month due to the 3 rd wave outbreak. Vaccination and outbreak control would be key determinant for future economic trend.
Supply shortage could be a triggering event in the upcoming month after severe cluster outbreak.
Only merchandise exports excluded gold continuously recovered to all destinations; however, foreign tourists were still at very low level, but with more positive outlook from Phuket sandbox.
Domestic activities considerably dropped :
- Private consumption declined together with worsened confidence and labor market condition. Number of Thai tourists also faded away.
- The level of private investment reduced in all categories together with weaker business sentiment. Moreover, there was weak condition in c onstruction and real estate sector.
- Public spending were greater than last year.
Inflation jumped from low base effect and increase in energy prices

Even unexpected long period of high US inflation put pressure to the market as Federal Reserve to tighten monetary policy sooner than expected, which could in turn dampen a consumer led recovery, the rise in new delta variance seems to have more impact on Financial markets. LT US 10 Y inflation has been dampen for few months from its peak on mid of May, in contrast, US 10 Y real yield slightly moved up from 0.9% in May 21 to 1.0%.
Compared to USD, THB still continues to be weakening through 2021 as weaker economic recovery than global peers, negative current account, and covid 19 situation. Moreover, USD Index continued to rise from last month as the rise in new delta variance has positive impact on safe haven currencies.
Short term TGB will stick to policy rate at 0.50% at least through Q 3 2022 . Long term TGB yield should be raised in the medium term as 10 Y UST yield on the way to recover soon.