Treasury Outlook

If we look back at the price movements of these products, we can see that they came up quickly and from a low base.

Fundamentally, the prices of these products are supported by the fact that demand growth is outpacing supply, which leads to speculation on shortages.

Consider oil  demand from fastgrowing economies like China and India has con¬strained oil supplies, and this is not only because there are few newfound reserves, but also because there is limited global capacity to transform crude oil into finished petroleum prod¬ucts and to transport them.

When it comes to food prices, people are concerned about declining output due to the effects of global warming and also that some fertile land could be used to produce alter¬native energy crops. On the demand side for food, the world population is increasing togeth¬er with changing consumption patterns, as people shift to eat¬ing more protein and fewer car¬bohydrates. Therefore, we need more grainbased feed crops to feed livestock. For these rea¬sons, the current decline in prices is likely to be temporary until major developments occur in alternative energy and there is a new green revolution for farmers.

Regarding the US economy, the major concerns remain the same. Many banks in the US are still mired in trouble. Some of them have to make further writedowns and need new cap¬ital injection.

Despite this, the US dollar has strengthened against other major currencies, particularly the euro and the yen.

On interest rates, most market players believe the Fed will hold its rate unchanged for the time being. The Fed fund rate is now at 2 per cent.

On the domestic front, we have seen efforts to bring vari¬ous parties together to collabo¬rate on economic policy. We take it as a good sign that the government and its economic advisers are finally sitting together and sharing views.

The baht has weakened against the dollar and is trading around the 34 level. We believe the baht will weaken further in the weeks to come, particularly as the external account continues to deteriorate and political uncertainty remains.