John Woods
John Woods

Economic outlook upbeat but guarded

Economy September 03, 2018 01:00

By Wichit Chaitrong
The Nation

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The global economic outlook will improve in the second half of 2018, but risks lie ahead in the state of the US dollar and a rapid rise in household debt in Thailand and elsewhere in Asia, a Credit Suisse executive says.

John Woods, managing director and chief investment officer for Asia Pacific, said he was upbeat about the global outlook for the balance of year and foresaw good news for export-led economies in the region, including Thailand.

Growth is now synchronised worldwide, he said. US growth in the second quarter was a high 4.2 per cent and Woods expected China’s growth to remain stable at about 6.5 per cent and European growth to accelerate from the current 2 per cent. 

But US growth is quite fast and inflationary, he said. The US has driven global growth for 2-3 years and it should now be Europe’s turn. 

“In a situation like this, it’s hard to become bearish,” he said.

Woods is positive about equity-investment opportunities and short-duration Asian corporate and emerging-market bonds.

He said earnings on global equities would continue to accelerate as a result of productivity gains. 

Stronger growth in Europe would stabilise the US dollar, which would be good news especially for emerging markets.

Conversely, if European growth doesn’t accelerate, it would harm the US dollar.

If another US Federal Reserve rate hike becomes the only game in town, the dollar could be overvalued, Woods warned.

That would trigger another round of capital outflows from emerging markets, he said. The dollar has been strengthened by a differential among interest rates.

But Woods feels the dollar will mostly likely remain stable, along with the euro. He predicted that both the Fed and the European Central Bank would hike rates next year, resulting in a narrowing of the differential in interest rates. 

He acknowledged there was a lot of uncertainty due to the threat of a trade war between the United States and China. It posed a risk to the global economy, but no one can predict what might happen.

Woods was not worried about contagion spreading from the monetary crises in Argentina and Turkey, however.

Argentina has defaulted on its debt payments multiple times, he pointed out. It is currently seeking an emergency loan from the International Monetary Fund.

Rapid rises in household debt in Asia, especially in Thailand and Malaysia, pose another challenge, Woods said. Higher interest rates would affect economic growth and patterns of consumption. 

Thosaporn Sirisumphand, secretary general of the National Economic and Social Development Board, has said household debt remains high at Bt12.17 trillion – 77.7 per cent of GDP – though most households were still able to repay their debts. The debt rose 5.2 per cent year-on-year by the end of March. Bad debts in consumer loans rose 10.3 per cent by the end of the second quarter.

Central bank governor Veerathai Santiprabhob last week expressed concern over large capital inflows that harmed the baht against the dollar and Chinese yuan.

He said some investors were seeking returns by putting their money in short-term bonds and the central bank was uncomfortable about the situation. A large current-account surplus and substantial international reserves make the baht attractive for short-term investors while the exchange-rate market is volatile.

Meanwhile, Don Nakornthab, senior director in the Bank of Thailand’s economic and policy department, said consumer spending showed signs of solid growth in July, as indicated by an increase in purchases of durable goods.

At the same time, though, purchases of non-durable goods were a sign of weakness, he said.

Conflicting indicators also suggested that high-income earners were buying new cars, while low-income people remained cautious about spending on non-durable goods.

Although the economy grew 4.6 per cent in the second quarter, farmers were suffering. Central bank research found that people in 48 provinces still depended largely on farm income. Although farmers’ real income has improved in the five months to July after years of low or negative growth, but price of farm produce remained low. 


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