● Private consumption index (PCI) registered a steeper contraction in August (-1.0% YoY; Jul: -0.1%)

- Partly reflecting a fading of pent-up demand and the absence of support from increased spending during the substitute Songkran holiday in the previous month.

● By segment, the decline was attributable to the services and non-durables segments

- Services (-25.6%; Jul: -22.8%): largest drop in three months, as domestic tourism activity withered on lack of extended weekends in August.

- Non-durables (-1.4%; Jul: -1.3%): fell at a slightly faster pace on the back of softer growth in fuel consumption (2.2%; Jul: 5.9%), largely due to the above-mentioned factor.

● Private investment index (PII) recorded the smallest contraction in eight months (-4.7% YoY; Jul: -12.7%)

- Consistent with the continued increase in capacity utilisation rate (61.4%; Jul: 58.9%) and modest recovery in domestic and external demand condition.

● The better performance was underpinned by higher MoM investment in machinery and equipment

- Imports of capital goods (-10.2% YoY/ 5.6% MoM; Jul: -21.2% YoY/ 1.2% MoM), domestic machinery sales (- 13.0%/ 8.4%; Jul: -21.8%/ -6.3%), newly registered motor vehicles for investment (-8.9%/ 7.0%; Jul: -16.7%/ - 2.7%): smallest YoY contraction in at least five months in line with an upturn in business sentiment.

● Private sector expenditure to remain on a gradual recovery trend, but with additional downside risks

- Private sector spending to be supported by further disbursement of fiscal stimulus in 4Q20 and the additional public holidays which resulted in 3 extended weekends (4 days each) in September, November and December. However, downside risks remain from domestic political instability and resurgence of COVID-19 cases in major export markets.

- Against this backdrop, we continue to expect the BoT to stay put on policy rate for the rest of 2020, underscored by its less-dovish tone and amid limited policy space.

Source: Kenanga Research - 1 Oct 2020