Economic and Financial Outlook August 2021

PMI data in July showed impacts of the Delta variant to economic outlook. Asian countries ,which number of Covid 19 cases remained high, had weaker outlook. U.S. service sector also dropped from the impact of Delta varient
Global export growth began to taper Global trade volume stalled while industrial production likely peaked. China and EU export growth dropped as low base factor no longer giving in.
Overall, global GDP in 2 Q 21 rose strongly due to low base impact from last year. Both developed and developing countries showed strong economic improvement. However, delta variant may cause countries to stumble in Q3
U.S. labor market displayed strong improvement in July , adding 943,000 jobs. Inflation continued to rise from service and transport prices. Meanwhile, European retail trade and industrial production decreased after low base impact ended.
Chinese economic activities dropped further in July. Japan s inflation rose in June from rising energy prices

As of June 2021, Thai economy consecutively declined due to the 3rd wave of domestic outbreak with low vaccination rate and stringent containment measure.
Manufacturing production declined after several cluster outbreak in Thailand, causing temporarily production line shutdown. Supply shortage could possibly be a triggering event in the coming months.
Only merchandise exports continuously recovered to all destinations ; however, foreign tourists dropped slightly from all country of origins, except from East Asia Meanwhile, Phuket sandbox could pose limited benefits due to the area’s outbreak.
Domestic activities in weak conditions: Private consumption was fragile with worsened confidence and weak labor market condition. Meanwhile, Private investment was stable with the only support from merchandise export recovery. However, there were lower activities in c onstruction and real estate. Public spending, especially investment, were greater than last year.
Inflation declined due to lower base effect from energy price, core inflation was stable.

As the rise in new delta variance might not have significant impact on US and EU economy, Federal Reserve is expected to taper asset purchase program later this year. Fed might announce tapering plan in Sep 21 meeting. Even with more flow to safe haven currencies such as USD, UST yield has partially reacted to this. 10Y UST has slightly moved up from 1.20% in July 21 to around 1.25%. We see more steep UST yield curve at the year end.
THB fundamental hasn t changed much since few months ago. Compared to USD, THB might continue to be weakening through 2021 as weaker economic recovery than global peers, negative current account, and covid 19 situation.
Short term TGB will stick to policy rate at 0.50% at least through Q1/2023 . Long term TGB yield should be raised in the medium term as 10Y UST yield on the way to recover soon.