Foregin Direct Investment (Billion USD) China U.S. Asia World Quarterly Economic Outlook: Quarter 3 2018 on 25 September 2018 Strong Economic Expansions amidst Uncertainty of Trade War Thai Economy: Thai economy in the third quarter continues to grow at stronger pace from exploding growth of domestic private consumption and investment. Private investments increased prominently beneficial from Eastern Economic Corridor (EEC). The acceleration of foreign direct investment has been rising to the historical level over the first seven months of this year. Government investment will also be the main economic support due to several infrastructure projects which will be on bidding process at the end of this year and the beginning of next year. Bangkok Bank expects Thai economy to grow at 4.5% this year supported by the improvement in private consumption and accelerating government investment. Global economy: Global economy in the third quarter has a good trend of expansion from an increase in private consumption and manufacturing sectors. The recovery in U.S. economy has positive effect with expansion in employment which is better than expected. In contrast, Japan and Europe economies are slowdown from weakening consumption. For Asia, China economy has a good sign of expanding growth from consumption sector and China government stimulus to increase economic activity in order to mitigate the effects from the trade conflict between U.S. and China. The analysts raise their global economic forecast to 3.8% from 3.7% last year. Nevertheless, the trade conflict between U.S. and China could be escalated and the global growth would expand below the forecast, especially U.S. and China will be strongly affected. Figure 1 EEC encourage rising in FDI Figure 5 Trade war effect on economy FDI in Thailand 18000 16000 14000 12000 10000 8000 6000 4000 2000-2000 0 1 2 3 4 5 6 7 8 9 10 11 12 Month 2018 FDI Avarage FDI Source: Bank of Thailand 50 Billion USD 250 Billion USD Source: WB IMF GDP effect of U.S.-China tariffs on import goods at 25% in amount of 50 and 250 thousand million US dollars in 2018-2019 The Report was written by Dr. Surakiat Kahaboonsirihansa Surakiat.Kahaboonsirihansa@bangkokbank.com / +662 2302784 Disclaimer: This document is produced based upon sources believed to be reliable but their accuracy, completeness or correctness is not guaranteed. The statements or expressions of opinion herein were arrived at after due and careful consideration to use as information for investment and/or buying insurance. Expressions of opinion contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities, insurance and products. The use of any information shall be at the sole discretion and risk of the user. The user should carefully read details in the prospectus before making investment decision, in the factsheet and insurance policy before buying insurance, and in the products factsheet. Please see Disclaimer at the end of the report Page 1 0.00% -0.20% -0.40% -0.60% GDP Effect from U.S. and China Trade war -0.1% -0.5% -0.1% -0.6% -0.04% -0.04% -0.3% -0.3%
Foregin Direct Investment (Billion USD) Thai: Foreign investors invest in Thailand at historical level Figure 1 Eastern Economic Corridor (EEC) projects encourage rising in foreign direct investment FDI in Thailand 18000 16000 14000 12000 10000 8000 6000 4000 2000 0-2000 Source: Bank of Thailand data since 2005-July 2018 Figure 2 ASEAN is a top pick for multinational companies from trade war Place to invest after U.S.-China Trade war Southeast Asia South Asia U.S. Europe East Asia Latin America Others 1 2 3 4 5 6 7 8 9 10 11 12 Month 2018 FDI Avarage FDI 4.2 4.2 3.9 Source: Bloomberg, Amcham China U.S. companies invested in China decide to relocate production base after U.S-China trade war Figure 3 Thai economic forecast 10.4 USDTHB 35.8 32.6 30.5 - - Source: Bangkok Bank, Bloomberg Economic Forecast 6 6.3 18.5 0 5 10 15 20 Indicator 2016 2017 2018 2019 2020 Economic Activity Real GDP (YoY%) 3.3 3.9 4.5 4.3 4.3 CPI (YoY%) 0.2 0.7 1.2 1.4 1.8 Unemployment (%) 1.0 1.2 1.2 1.2 Interest Rates Central Bank Rate (%) 1.50 1.50 1.50 Exchange Rates Thai economy is accelerating In the 3 rd quarter, Thai economy continued to expand from the first half of this year. Private consumption continued its recovery with rising consumer confidence. Durable goods consumption including passenger cars keeps increasing. The recoveries in global and Asia economy have been supporting the exports and tourism. As private investments increased strongly beneficial from Eastern Economic Corridor (EEC) which had been legally effective in the 2 nd quarter, confidences of the business sector and private investment are increasing. Private Investment Index in April increased 7% from last year because of the increase in machine s order. The acceleration of foreign direct investment has been rising to the historical level over the first seven months of this year. Government investment will be main economic support due to several infrastructure projects which will be on bidding process at the end of this year and the beginning of next year. Therefore, the government investment will grow continuously next year. Trade war encourages Thailand Investment Eastern Economic Corridor (EEC) and upcoming election including U.S.-China trade war will encourage foreign Investment. According to the survey from multinational enterprise in China, it is shown that multinational companies aim to move its production base from China to ASEAN which is the most attractive region from U.S. and China trade war. Rate unchanged but Inflation accelerated The recovery of Thai economy in 2018 gradually accelerated which is expected to grow at 4.5%. Inflation rate gradually accelerated at 1.6% in August but, for 2018 inflation, it is still expected to stay below Bank of Thailand target at 2.5%. Under the low inflation environment, the policy rate is expected to stay unchanged at 1.5% in 2018. Please see Disclaimer at the end of the report Page 2
China U.S. Asia World Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 World: Rising Economy amidst a rise in the interest rate and trade conflict Figure 4 Revision in global economic forecast World GDP revision 4.0 3.0 2.0 1.0 0.0 World U.S. Europe Japan Figure 5 Trade war effects on economy 0.00% -0.10% -0.20% -0.30% -0.40% -0.1% GDP Effect from China-U.S. Trade Conflict -0.1% -0.50% -0.5% -0.60% -0.6% 50 Billion USD 250 Billion USD Source: WB IMF GDP effect of U.S.-China tariffs on import goods at 25% in amount of 50 and 250 thousand million US dollars in 2018-2019 Figure 6 Global economic forecast -0.04% -0.04% -0.3% -0.3% Region 2016 2017 2018 2019 2020 Real GDP (YoY%) World 3.2 3.7 3.8 3.6 3.3 US 1.5 2.2 2.9 2.5 2.0 Eurozone 1.8 2.4 2.1 1.8 1.6 Asia ex Japan 6.0 6.2 5.9 5.9 5.7 Japan 0.9 1.8 1.0 1.0 0.6 CPI (YoY%) World 2.8 3.0 3.3 3.2 3.2 US 1.3 2.1 2.5 2.3 2.3 Eurozone 0.2 1.5 1.7 1.7 1.7 Asia ex Japan 2.3 1.9 2.1 2.6 2.7 Japan -0.1 0.5 1.0 1.1 1.4 Rising global growth under upward interest rate For the 3 rd quarter in 2018, global economy continues its recovery driven by private consumption and manufacturing sectors. U.S. economy has improved from consumption and industrial production supporting the stronger-than-expected employment. The European economy expanded albeit at a slower pace from decline in business confidence. The European Central Bank (ECB) is likely to end QE stimulus by end-2018. The Japanese economy slowed down from poor consumption, but manufacturing production starts to recovery from exports. The China economy continues to expand driven by consumption-oriented economy and government stimulus to mitigate the effects from the trade conflict between U.S. and China. The Indian economic growth recovered from strong demand in manufacturing production and consumption. Risk from interest rate and trade conflict Risk of global economy has caused from rising in policy rate in many countries. U.S. Federal Reserve expected to raise the interest rate for four times this year. The European Central Bank (ECB) will consider raising the interest rate in the 2 nd half of 2019. Bank of Japan (BOJ) has gradually reduced QE this year. These reasons lead to decelerating money supply growth. Global economy is facing risk of trade war. If China and U.S. begin trade barriers, global economic growth may drop by 0.3%, especially both U.S. and China. Global economy are facing risk of Trade war The analysts raise their global economic forecast to 3.8% from 3.7% last year. Nevertheless, the trade conflict between U.S. and China could be escalated and the global growth would expand below the forecast. Please see Disclaimer at the end of the report Page 3
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 U.S.: Accelerating growth but having political risk Figure 7 Trump Approval Rating dropped 47 45 43 41 39 37 35 Figure 8 Fed s policy cannot control interest rate 2.1 1.9 1.7 1.5 1.3 Trump Approval Rating dropped Trump Job Approval Rating Fed Policy implementation failure Effective Fed Fund Rate Source: Bloomberg Figure 9 U.S. economic forecast Dollar Index (RHS) Midpoint Fed Fund Target Indicator 2016 2017 2018 2019 2020 Economic Activity Real GDP (YoY%) 1.5 2.2 2.9 2.5 2.0 Consumer Spending (YoY%) 2.7 2.5 2.6 2.5 2.1 Private Investment (YoY%) -1.3 4.8 5.8 4.6 3.0 CPI (YoY%) 1.3 2.1 2.5 2.3 2.3 Unemployment (%) 4.9 4.4 3.9 3.6 3.8 Interest Rates Central Bank Rate (%) 0.75 1.50 2.50 3.05 3.10 2-Year Note (%) 1.19 1.89 2.83 3.19 3.28 10-Year Note (%) 2.45 2.41 3.09 3.34 3.50 105 100 95 90 85 U.S. growth outperformed U.S. economy continued to recover from the 2 nd quarter in 2018 due to recovery in manufacturing production from strong consumer and producer confidences. The strong economy also supports employment and the unemployment which declined to a low level at 3.9% in August. Trump tax cut will support the economic growth. Core PCE Inflation, which is currently at 2% in July, is likely to hit the Federal Reserve target. Under this condition, new FED forecast to increase interest rate changed to four times from three times in the past forecast. High risk from political issue Mid-term election will be held in November. Uncertainty of U.S.-China trade policy caused reducing in Trump s popular votes. It effects on U.S economy and Republican Party which might be a loser from the election. Nevertheless, U.S. may face the problems about approval of the government budget and a lift on public debt ceiling from the conflict between Republican and Democratic parties in many issues such as immigrant, cutting of healthcare and welfare. Risk from rising Fed s interest rate Currently, the federal funds interest rate is 1.75-2% and Federal Reserve has been unwinding its balance sheet. These factors make real interest rate be higher than Federal Reserve s target interest rate. It may cause Federal Reserve to change policy by increasing interest on Excess Reserve lower than expected. However, rising interest rate will affect slow pace of expansion U.S economy in 2019. Trade barriers from U.S. tariffs on import goods affect the declining business confidence. Cost of tariffs on import goods also affects some products which are burden to consumers. These factors can lead U.S economy to face risk of economic slowdown next year. Please see Disclaimer at the end of the report Page 4
Nov-15 Mar-16 Jul-16 Nov-16 Mar-17 Jul-17 Nov-17 Mar-18 Jul-18 Europe: Economic slowdown and ECB declared end of QE Figure 10 Drop in producers confidences 65 European PMI 60 55 50 45 EU Germany France UK Italy Spain Figure 11 Problems in Emerging markets effect on European Banking sector Banking Exposure on risky EM market Latin America 1% Asia and Others 16% Europe 66% U.S. 17% Source: BIS weak countries in EM are Latin America, Turkey and South Africa Figure 12 European economic forecast Indicator 2016 2017 2018 2019 2020 Economic Activity Real GDP (YoY%) 1.8 2.4 2.1 1.8 1.6 CPI (YoY%) 1.8 1.5 1.7 1.6 Unemployment (%) 1.1 1.2 1.4 1.3 Real GDP by Region Germany 1.9 2.2 2.0 1.8 1.6 France 1.2 2.2 1.7 1.7 1.6 Italy 0.9 1.5 1.2 1.2 1.1 Spain 3.3 3.0 2.7 2.3 1.9 Sweden 3.0 2.4 2.6 2.2 2.0 United Kingdom 1.9 1.7 1.3 1.5 1.6 Europe economy on slowdown European economic growth has been decelerating this year from decline in manufacturer and consumer confidence. It is worsen due to concern about the European Central Bank (ECB) plan on an upcoming end to its massive quantitative easing (QE) program in 2018. In addition, ECB expects to end the negative interest rate policy in the second half year of 2019. Eurozone annual inflation rate was 2% in August 2018, which closes to European central bank (ECB) target. An expanding economy and inflation helps supporting ECB to reduce on economic stimulus. Risk of political issue and problem in Emerging markets Political conflict in Europe is still an important risk especially in Italy and Spain. The new Italian government supports to anti-immigration policy and increases public spending to recover employment and economy. Under this condition, it raises a concern about European political stability. Moreover, Brexit risk is increasing due to slow progress of Brexit plan between U.K. and European Union. As large exposure of Europe have made massive syndicated loans to Turkish and Latin American banks, it could result in instability of European Banking industry which exposed to its risk from the weakening countries in emerging markets (i.e. Argentina, Turkey). Analysts expected to the economic will be slowdown European economy in 2018 is expected to grow at 2.1% lower than 2017 at 2.4%. The supporting factors are private consumption and the rising property sectors while political still remain the major risks in Europe. ECB reduced the QE stimulus and already affected the economy significantly. European political conflict is a major obstacle to economic recovery. Please see Disclaimer at the end of the report Page 5
Argentina Turkey Philippines S.Africa India Brazil Vietnam Indonesia SKorea China Thailand Malaysia Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Asia: Economic growth will be strong with concern of trade-war risks Figure 13 Strong expansions in Asian economy 8 7 6 5 4 3 Source: Bloomberg Asian GDP Forecast Thailand Asi ex Japan China India Figure 14 Asia has high credibility in monetary policy EM and Asia Inflation Target Policy 35 30 25 Inflation 20 15 Target 10 5 0 Source: Bloomberg Figure 15 Asian economic forecast Indicator 2016 2017 2018 2019 2020 Economic Activity Real GDP (YoY%) 6.0 6.2 5.9 5.9 5.7 CPI (YoY%) 2.3 1.9 2.1 2.6 2.7 Real GDP by Region China 6.7 6.9 6.6 6.3 6.1 India 8.2 7.1 7.4 7.5 South Korea 2.8 3.1 2.8 2.7 2.6 Taiwan 1.4 2.9 2.7 2.3 2.0 Indonesia 5.0 5.1 5.2 5.2 5.4 Malaysia 4.2 5.9 5.1 5.0 4.8 Philippines 6.9 6.7 6.5 6.5 6.5 Singapore 2.0 3.6 3.1 2.7 2.4 Asia economy continues to expand Overall, Asian economy during the 3 rd Thailand 3.3 3.9 4.4 3.8 Please see Disclaimer at the end of the report Page 6 quarter continues its recovery from last year, supported by manufacturing sectors and export. Better consumer confidence in several countries supports the increase in private consumption. While growth in Asia starts to recover from One-Belt One-Road initiative which will bring the infrastructure investment to China and other countries in Asia. For Chinese economy, industrial production has been slowly expanding from decelerating demands. Therefore, Chinese governments supported economy from monetary and fiscal stimulus to mitigate the risk of trade barrier from U.S. and they have set its GDP growth target at around 6.5% for 2018, unchanged from 2017. For South Korea and Taiwan, the technology sector continued to grow from the demand of technology products. Even though inflation increased more than expectation, India s economy still grew better than expected. Asian monetary policy is mostly credibility Rising inflation and capital outflow have been affecting some countries in emerging markets (i.e. Argentina and Turkey) and some countries in Asia have rapidly been affected by weakening currency such as India, Indonesia and Philippines. However, monetary policies in Asia are credible and stabilized which most of central banks are able to control inflation at the target rate. Only Philippines and Indian inflations are accelerating from food and energy sector. Therefore, the volatility of emerging markets does not affect prominently on Asian economy. Strong expansion in 2018 The analysts expect Asian economy to grow at 5.9% in 2018 lower than 6.2% last year. China s economy is expected to grow at 6.6% and India s economy is expected to grow at 7.4%. The expansions for other ASEAN countries are favorable, including 5.2% of Indonesia. For Malaysia and Singapore, their economies will expand at slower pace this year.
May-14 Oct-14 Mar-15 Aug-15 Jan-16 Jun-16 Nov-16 Apr-17 Sep-17 Feb-18 Jul-18 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 Japan: Production recovery from global demand but inflation accelerated Figure 16 Having a signal on the recovery of Japan s economy 20 15 10 5 0-5 -10-15 Production recovered Industrial Production Machine Oder Figure 17 Rising inflation from accelerating labor cost 4 3 2 1 0-1 -2-3 Inflation is on rising trend Inflation Wage Source: Bloomberg Figure 18 Japanese economic forecast Indicator 2016 2017 2018 2019 2020 Economic Activity Real GDP (YoY%) 0.9 1.8 1.0 1.0 0.6 CPI (YoY%) -0.1 0.5 1.0 1.1 1.4 Unemployment (%) 3.1 2.8 2.4 2.4 2.3 Interest Rates Central Bank Rate (%) -0.10-0.10-0.10 0.00 0.00 Exchange Rates USDJPY 117 113 111 106 103 Global demand supports Japanese economy Japanese economic growth is expanding in the 3 rd quarter from producer confidence due to the strong global and Asian economic expansions. The manufacturing sectors will benefit from rising global demand. The economy is driven by export and tourism which helps domestic consumption and investment recover. A pickup in real estate sector drives up the property and land prices. Raising inflation and accelerating labor cost Japanese economy is recovering slowly. Meanwhile, the limited labor and unemployment rate which continued to fall to 2.5% in July supporting increases in the labor costs and accelerating inflation rate at 1.2% in August. However, Japanese economic still faced aging population and risk of high level of public debt. It caused bank of Japan (BOJ) to maintain negative interest rate policy and is expected to gradually reduce economic stimulus in 2019. Economic slowdown in 2018 Japanese economy is projected to edge up to 1.0% in 2018 slower pace than 2017 since the economy has expanded more than expected during 2017 from export, consumption and investment. However, the economic growth rate remains low and inflation is gradually increasing. Inflation in 2018 is forecasted to be 1% YoY below the BOJ target. Therefore, BOJ is likely to support the accommodative policies throughout this year. In the aspect of risk, Japan s economy still faced with risk of U.S. tariffs on import goods especially passenger cars. The tariffs would affect significantly on Japanese economy due to its export to U.S. at about 19% of total export. Please see Disclaimer at the end of the report Page 7
Global Economic Summary Real GDP (YoY%) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 World 4.3 3.5 3.5 3.6 3.5 3.2 3.7 3.8 3.6 3.3 US 1.6 2.2 1.7 2.6 2.9 1.5 2.2 2.9 2.5 2.0 Eurozone 1.6-0.9-0.2 1.3 2.1 1.8 2.4 2.1 1.8 1.6 France 2.1 0.2 0.6 0.9 1.1 1.2 2.2 1.7 1.7 1.6 Germany 3.7 0.5 0.5 1.9 1.7 1.9 2.2 2.0 1.8 1.6 Italy 0.6-2.8-1.7 0.1 1.0 0.9 1.5 1.2 1.2 1.1 Spain -1.0-2.9-1.7 1.4 3.4 3.3 3.0 2.7 2.3 1.9 United Kingdom 1.5 1.5 2.1 3.1 2.3 1.9 1.7 1.3 1.5 1.6 Japan -0.2 1.5 2.0 0.4 1.4 0.9 1.8 1.0 1.0 0.6 Asia 7.7 6.4 6.4 6.3 6.1 6.0 6.2 5.9 5.9 5.7 China 9.5 7.9 7.8 7.3 6.9 6.7 6.9 6.6 6.3 6.1 Hong Kong 4.8 1.7 3.1 2.8 2.4 2.0 3.8 3.6 2.7 2.5 India 8.9 6.7 5.5 6.4 7.4 8.2 7.1 7.4 7.5 Indonesia 6.2 6.0 5.6 5.0 4.9 5.0 5.1 5.2 5.2 5.4 Malaysia 5.3 5.5 4.7 6.0 5.0 4.2 5.9 5.1 5.0 4.8 Philippines 3.7 6.7 7.1 6.2 6.1 6.9 6.7 6.5 6.5 6.5 Singapore 5.3 1.9 4.4 3.3 2.0 2.0 3.6 3.1 2.7 2.4 South Korea 3.7 2.3 2.9 3.3 2.8 2.8 3.1 2.8 2.7 2.6 Taiwan 3.8 2.1 2.2 4.0 0.8 1.4 2.9 2.7 2.3 2.0 Thailand 0.8 7.3 2.8 0.8 2.9 3.3 3.9 4.5 4.3 4.3 Vietnam 6.2 5.3 5.4 6.0 6.7 6.2 6.8 7.0 6.8 6.8 Central Bank Policy Rate 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 US 0.25 0.25 0.25 0.50 0.75 1.50 2.50 3.05 3.10 Eurozone 1.00 0.75 0.25 0.05 0.05 0.00 0.00 0.00 0.15 0.60 United Kingdom 0.50 0.50 0.50 0.50 0.50 0.25 0.50 0.75 1.15 1.55 Japan 0.10 0.10 0.10 0.10 0.00-0.10-0.10-0.10 0.00 0.00 Asia China 6.56 6.00 6.00 5.60 4.35 4.35 4.35 4.35 4.30 4.25 India 8.50 8.00 7.75 8.00 6.75 6.25 6.00 6.55 6.70 6.85 Thailand 3.25 2.75 2.25 2.00 1.50 1.50 1.50 1.50 Currency Forecast 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 EURO/USD 1.30 1.32 1.37 1.21 1.09 1.05 1.20 1.16 1.25 1.26 USD/GBP 1.55 1.63 1.66 1.56 1.47 1.23 1.35 1.30 1.39 1.41 JPY/USD 76.91 86.75 105.31 119.78 120.22 116.96 112.69 111.00 106.00 103.00 CNY/USD 6.30 6.23 6.05 6.21 6.49 6.95 6.51 6.83 6.70 6.40 INR/USD 53.07 55.00 61.80 63.04 66.15 67.92 63.87 71.43 70.00 67.40 THB/USD 31.55 30.59 32.71 32.91 36.03 35.84 32.57 30.50 Please see Disclaimer at the end of the report Page 8
Thai Economic Forecast Please see Disclaimer at the end of the report Page 9
Global Economic Forecast Please see Disclaimer at the end of the report Page 10
U.S. Economic Forecast Please see Disclaimer at the end of the report Page 11
Europe Economic Forecast Please see Disclaimer at the end of the report Page 12
Asia ex Japan Economic Forecast Please see Disclaimer at the end of the report Page 13
Japan Economic Forecast Please see Disclaimer at the end of the report Page 14
Disclaimer: This document is produced based upon sources believed to be reliable but their accuracy, completeness or correctness is not guaranteed. The statements or expressions of opinion herein were arrived at after due and careful consideration to use as information for investment and/or buying insurance. Expressions of opinion contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities, insurance and products. The use of any information shall be at the sole discretion and risk of the user. The user should carefully read details in the prospectus before making investment decision, in the factsheet and insurance policy before buying insurance, and in the products factsheet. Please see Disclaimer at the end of the report Page 15