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Economic vocabulary is something that is around us in our daily life. Sometimes we change the economy news channel to others because the vocabularies used in the news seem like technical vocabulary. Let’s take a look at what these economic vocabularies mean.
GDP stands for Gross Domestic Product. GDP represents the whole economic value of the country. There are 4 parts which are Consumption which is about consumption by the private sector and public sector, Investment which is about private sector investment, Government Spending which is about Government sector spending and investment, and Net Export which means the net value of export.
If it is reported that Thailand’s GDP has increased, this means that the overall economy is growing. On the other hand, If it is reported that Thailand’s GDP has decreased, this means that the overall economy is slowing down. This information can be used in analyzing investment direction in the future.
Inflation rate is the rate in exchange for goods and services in our daily life. For example, food cost, transportation fare, fuel cost, medical cost, clothes, land etc. The rising inflation rate means goods and services are more expensive than before. The value of money is reduced because you cannot purchase the same goods and services at the same price as they used to.
Inflation rate affects investment as well because an increase in inflation decreases a real return on investment. For example, the return on a savings account is 5% but the inflation rate is at 3% per year, the real return of investment is only at 2% per year. This is the reason why inflation is considered to be a rival of saving.
On the other hand, soft inflation is considered to be good for the stock market because this is a sign for future growth. However, if the inflation rate increases too fast, it will have more negative consequences because it will impact on operating costs due to the upward interest rate trend, as well as the cost of raw materials.
In economic news you might have heard “Thai Baht Appreciation” and “Thai Baht Depreciation”. These are called the exchange rate by comparing the price of one currency against another. For example, The Thai Baht is appreciating compared to the US Dollars. This means that the same amount of Thai Baht can be exchanged for more US Dollars.
The appreciation and depreciation of currency is a result of people’s demand on that currency which can be caused by many factors such as interest rate, inflation rate, economic growth, a central bank policy, international trade and political factors. The exchange rate causes a lot of impact on import and export businesses, tourism, including businesses that have to purchase machines and ingredients from other countries.
The interest rates set by the central bank or national bank of each country. will affect other interest rates in the economic system. It will affect other interest rates in the economic system such as Deposit interest rates and loan interest rates of commercial banks.
Normally, commercial banks will adjust their interest rates to comply with the policy interest rate but not the same as the policy interest rate. This is because banks have other factors to consider such as Demand for loans, volume of deposits, inflation, operating costs etc.
Economic policy can be divided into 2 types as follow;
5.1 A Monetary Policy is policies related to financial instruments including the control of money supply, exchange rate, and interest rate. The Central Bank or National Bank is responsible for setting a policy direction.
5.2 A Fiscal Policy is a policy concerning the government’s income and expenditure including the collection of taxes. The Government is responsible for setting a policy direction.
Funds from foreign investors who have invested in the Thai stock market are mostly in high-value funds. Therefore, where funds flow, the country’s stock market tends to rise accordingly which makes that market get more attention.
QE and QT are one of the central bank financial instruments to drive the economy to growth, or tap the brakes to slow down.
QE stands for Quantitative Easing which means to increase financial liquidity by increasing the amount of money in the economic system by acquiring financial assets. The objective is to stimulate economic growth but there will be a rising inflation rate as a consequence.
QT stands for Quantitative Tightening which is the opposite of QE. It is about taking money out of the economic system by selling previously purchased financial assets and reducing the amount of financial liquidity. This is often taken out in times when the economy is overheating.
Commodity means product types that look the same or have the same standards around the world. It can be categorized into 2 groups as follow;
2.Hard Commodities which are commodity goods from natural resources such as oil, gold, iron, coal etc.
The stock market index or Stock Index is a measure of the overall change in stock prices, there are a number of indices. For example, SET or SET index is an index that reflects all stock prices on the Stock Exchange of Thailand (SET), The SET50 Index is an index that reflects the top 50 liquidity and market capitalization stocks, The SETHD Index is an index that reflects 30 share prices with high dividend payouts and continuous payments, and The SET THSI index is an index that reflects the share price of companies operating in a sustainable way, based on ESG.
The benefits of consistent monitoring of the SET index will help investors see the overall market better and see a change in the direction of the index. In addition, we can also use the stock index as a benchmark to measure investment efficiency by looking at whether the stocks we invest in generate better returns or worse returns than the market.
It reflects the public’s attitude toward the country’s economic conditions at the time, mainly due to income, unemployment, and inflation.
The Consumer Confidence Index is surveyed monthly so you can analyze data and predict the future economic outlook. If consumers are confident that the economy will be good, spending and investment will increase, which will benefit the overall economy. On the contrary, If consumers lose confidence, they will start saving on spending and stopping investment, thus slowing the economic system.
