Outlook Quarter 2/2018

• Economic outlook in 2018
• Bull - Bear: Oil Prices
• In focus: e-Commerce: A New Silver Lining in CLMV
  • Doing e-Commerce business in Laos 
• Summary of main forecasts
  
  

Download Outlook Q22018

The global economy continues to expand in 2018 with accelerating inflation, led by US growth following tax reform and strong labor market, together with the Eurozone and Japan growth from their historically low unemployment rates. The overall global economy will continue expanding, driven by strong economic fundamentals on the back of international trade and tight labor market conditions across many regions. In addition to low unemployment, the US economy will benefit from tax cuts for both corporates and households, and will gain additional momentum from infrastructure investment projects promised by Trump going forward. Thus, US growth will accelerate at one of the highest rate this year, which will lift inflation significantly. As for the Eurozone and Japan, although inflation remains low, continued improvement in labor market conditions and business performance have translated into higher wages. In addition, robust private consumption will lead to a gradual and stable rise in inflation. Meanwhile, China’s economy, which is likely to slow down, as well as other emerging economies will still benefit from the growth of major economies driven by international trade. In addition, commodity price recovery in almost all categories will support continued growth. Central banks in major economies began tightening their monetary policies, with the Fed likely increasing its federal funds rate at least three times this year. At the same time, although the ECB and BOJ still maintain their quantitative easing policy and the asset-purchase program (QE) while keeping their policy rates on hold, both short-term and long-term interest rates will clearly be on an upward trend following the end of asset purchases by the ECB this year.

EIC’s latest forecast points to continued expansion of the Thai economy at 4.0% YOY in 2018, buoyed by improving external demand and recovering investment. The tourism and export sectors will continue to be the main growth drivers of the economy this year thanks to strong fundamentals of the global economy. In 2018, exports of goods and the number of tourists are projected to expand at 5.0% YOY and 7.9% YOY, respectively. Sustained growth in exports has led to an increase in capacity utilization, lending support to private investment going forward. Moreover, private investment has an additional stimulus from the government’s infrastructure investment, particularly following the greater clarity in the Eastern Economic Corridor’ (EEC) project as the Thai parliament passed the EEC law. This project has a high potential in attracting both domestic and foreign investment. In addition, the concern over shortage of migrant labor has subsided, after the government postponed enforcement of the new regulation on undocumented migrant workers and eased the regulation’s rules of punishment.

Domestic consumer spending is projected to continue expanding, but remains reliant on the purchasing power of certain groups. In 2018, growth in domestic consumption will sustain its momentum from the previous year due mainly to consumption of durable goods among high-income earners, reflected by the high rates of growth in automobiles’ sales in the early 2018. Nevertheless, spending from low-income households still faces headwinds due to high household debt level and slow recovery in employment and household income, reflected by increasing unemployment rate and declining overtime employment. This shows that the labor market has not received full benefits from the ongoing economic expansion. In addition, farm income has been negatively impacted by falling prices of agricultural products, thus leading to subdued expansion in consumption of non-durable goods. However, consumption of low-income workers will receive some support from the government’s state welfare project this year. 

Overall, downside risks to the Thai economy are low, but businesses in certain sectors should exercise greater caution. First, the US’s protectionist trade policies potentially have direct impact on some exports sectors, namely solar panels, washing machines, steel and aluminum. These sectors constitute a low proportion of the total values of Thai exports, however, this source of risk might be more elevated in case the US’s major trading partners retaliate and turn into trade war scenario. Second, strength and volatility of the Thai baht will have repercussion on exporters’ baht revenue as well as competitiveness of Thai agricultural products. Lastly, monetary policy normalization of major central banks, particularly the Federal Reserve, might trigger global financial markets’ volatility and tighten global liquidity, possibly resulting in adjustment in asset prices and negative impact on growth of some economies. For Thailand, EIC assesses that the economy’s external financial stability remains intact. Therefore, volatility in the global financial markets should have limited impact on Thai economic growth this year.

In Focus e-Commerce: A New Silver Lining in CLMV

The rapid expansion of internet and social media access in CLMV countries is paving the way for a new sales channel like “e-Commerce”. Today, e-Commerce markets in CLMV remain small, but they promise a robust growth, thanks to continuing developments of e-Commerce platforms and other related services. This is particularly true for Vietnam, with a more developed economy and a larger consumer market compared to its regional peers. All in all, the CLMV e-Commerce markets present an attractive opportunity for Thai businesses.