Published in EIC Outlook Q4/2017 Click here for more detail
U.S. GDP expanded in the second quarter of 2017 on the back of solid consumption and private investment. GDP grew 3.1%QOQ SAAR1 or 2.2%YOY, faster than in the previous quarter. Growth was led by private consumption which expanded 2.7%YOY thanks to strong hiring. In addition, private investment clearly recovered, with a 8.3%YOY rise in construction investment and 3.1%YOY rise in equipment investment. Public spending remained stable. Wages did not, however, mirror the big increase seen in employment, resulting partly to low inflation.
The U.S. economy might not get as much boost from the fiscal stimulus promised by President Trump, who pledged to boost investment and reduce taxes to benefit the business sector. Cutting taxes would require spending cuts. But the Trump administration has already failed in its big push to cut one spending program, the Affordable Care Act, the health insurance support program known as “Obamacare.” Now the White House is moving on to try to enact tax reforms, but this is likely to take at least a year to formulate, propose and put to vote in Congress. If a tax reform bill can be passed, its impact on the economy is not likely to be soon. EIC expects that the strong labor market will drive the U.S. economy for the rest of this year and beyond, supporting GDP growth of 2.2% in 2017 and 2.1% in 2018, even without fiscal policy stimulus. Burgeoning employment has underpinned continuing demand growth and will lead toward a gradual rise in wages. Private investment will rise in response to growth in demand. The jobs market is likely to continue to grow, which should lift inflation next year.
The U.S. dollar will strengthen gradually as confidence toward the currency improves. The dollar index (as of Sept 21) fell 11.3% from the beginning of the year, despite two hikes in the policy rate. The currency’s weak performance was driven in part by political uncertainty stemming from the deterioration in President Trump’s popularity. The market’s disappointment over a lack of progress in fiscal policy also played a part, driving funds to other regions. However, if Trump administration can successfully push some fiscal agenda by this year, market sentiment would improve. In addition, another policy rate hike by the end of this year would help support a gradual appreciation of the U.S. dollar by that time.
Implications for Thai Economy
1quarter-on-quarter, seasonally adjusted and annualized rate