● Decline in private consumption index (PCI) eased for the third straight month in July (-0.1% YoY; Jun: -4.7%)

- Reflective of further relaxation of lockdown measures on 1st July, marked by the reopening of border to selected group of travellers and entertainment venues.

● By segment, the improvement was observed across most categories, led by spending on durables and non-durables

- Durables (-15.7%; Jun: -18.9%): smallest drop in five months, underpinned by a recovery in car sales amid continued improvement in consumer confidence (50.1; Jun: 49.2).

- Non-durables (-1.3%; Jun: -3.2%): softest decline in four months, driven by a rebound in fuel consumption (5.9%; Jun: -6.6%) signifying increased domestic travels partly due to the substitute holiday for Songkran festival (27th July) which was postponed from April.

● Private investment index (PII) dropped at a slightly faster pace (-12.7% YoY; Jun: -12.1%)

- Remained pressured by significant excess production capacity and the relatively high uncertainty, particularly with the resurgence of COVID-19 cases in other major economies.

● The weaker performance was attributable to lower investment in machinery and equipment

- Imports of capital goods (-21.2%; Jun: -13.7%) and newly registered motor vehicles for investment (-16.7%; Jun: -12.6%): sharpest fall in two months as businesses delayed their investment plans.

● Private sector expenditure to continue exhibit a gradual recovery trend

- Going forward, private sector spending to be supported by continued easing in COVID-19 restrictions, expansion of stimulus measures for domestic tourism activities and marginal improvement in the labour market, as reflected by a decline in the number of workers registered for the temporary suspension of business. However, investment activities would likely chart a slower pace of recovery, influenced by development in major trading partners.

- Against this backdrop and combined with the BoT’s less dovish monetary policy statement, we expect the policy rate to be kept at 0.50% for the rest of the year, preserving the limited policy space in case of a protracted growth trend.

Source: Kenanga Research - 1 Sept 2020