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While financial conditions in the United States have improved gradually, the US market's core retail sales were weak in March and April, while the May figures were only slightly positive, according to a Citibank report.

This reflects the unsettled concerns on the prospects of wealth and future income. Yet US consumption should improve slightly in the second half of this year. A bigger, more meaningful improvement in US consumption is expected in 2010.

Inflation's momentum in most Asian economies appears to have bottomed following a sharp drop due to lower commodity prices and a rising output gap as global growth slows down dramatically. However, Hong Kong, Singapore and Thailand could be the exceptions due to their remaining large output gaps and relatively weak economic momentum.

Thailand's economy has been hit hard by the global economic recession over the past 12 months, marked by a sharp export decline and weak domestic demand.

However, corporate and sovereign balance sheets remain healthy, so the Thai economy is poised for a rapid recovery when global conditions take a turn for the better, according to another international bank's report.

The report also noted that the massive liquidity flowed through the balance of payment and easing sterilisation had led to a major excess liquidity build-up, with asset markets seeing increased inflows as real-sector recovery still lagged.

Domestic politics remains a major point of tension following civil disturbances in April. Former premier Thaksin Shinawatra, now a fugitive, remains influential but unpredictable as evidenced by the recent by-elections in which his Pheu Thai party won two House seats. That demonstrated the Opposition's strength ahead of a general election expected in the next nine to 12 months.

While there has been a slight pick-up in external demand as evidenced by key indicators in May, Thailand's domestic demand remains weak, while its private consumption and investment have not yet recovered.

Farm production and prices, meanwhile, dropped again in May, leaving rural incomes low, while the labour market remains weak.

On the fiscal side, disbursement of the first economic-stimulus package has been reasonable with around 60 per cent of the funds withdrawn at the end of May. However, the second economic-stimulus package, which won parliamentary approval recently, will be more significant, with the first tranche of more than Bt200 billion due to be available from August.

The report noted that new private consumption was now evident in the property sector, as investment-related demand was broadening into real end-user demand, supported by more accessible consumer housing credit.

Lending in the small and medium-sized enterprise (SME) sector has also started picking up, helping to stabilise the labour market and purchasing power.

In the stock market, two positive factors continue to support new investment in Thai stocks.

First, the retail and mutual-fund flows are mounting, as ample local liquidity is channelled into the asset markets. Second, earnings upgrades, which have lagged all other markets in Asia Pacific, are now coming through strongly.