● Private consumption index (PCI) moved out of the contraction territory, charting a flat growth in September (0.0% YoY; Aug: -0.3%)

- Reflecting the support from increased spending during the substitute Songkran holidays on September 4th and 7th, a rise in average monthly wage (3.4%; Jul: 0.7%), as well as a low base effect.

● By segment, the improvement was broad-based, led by the durables and services indices

- Durables (-4.8%; Aug: -9.6%): smallest drop in seven months, steered by continued recovery in car sales on the back of fiscal aid measures and launches of new car models.

- Services (-22.0%; Aug: -25.2%): contraction eased to a seven-month low on improved VAT collection at hotel and restaurant as domestic travels picked up during the four-day long weekend.

● Private investment index (PII) registered the least contraction in nine months (-3.7% YoY; Aug: -5.0%)

- Consistent with the five successive months of an uptrend in business sentiment (47.5; Aug: 45.7) and a gradual recovery in local and external demand conditions.

● The better performance was underpinned by lessened decline in investment in machinery and equipment

- Newly registered motor vehicles for investment (-1.6%; Aug: -8.9%), imports of capital goods (-8.1; Aug: -12.1%): softest fall in at least eight months in line with the rise in capacity utilisation rate (63.6%; Aug: 61.5%).

● Private sector expenditure to remain on a recover path, but with several headwinds

- Fresh tax breaks, extension of domestic tourism incentives, additional holidays in November and December and arrival of foreign tourists under the Special Tourist Visa are expected to prop up the recovery in the private sector activities. However, risks remain emanating from the global spike in COVID-19 cases and the domestic political turmoil which has weighed on consumer confidence (50.2; Aug: 51.0).

- Against this backdrop and a limited policy space, the BoT is expected to keep the policy rate unchanged for the rest of 2020 at 0.50%.

Source: Kenanga Research - 2 Nov 2020