The good news is that tourist figures were up in July and there was a halt to the decline of the dollar against the baht since July 1st. However, Thailand’s bond market on Monday fell into an inverted yield curve with 2-year bond yields higher than 10-year instruments. This last happened when devastating floods hit the country in 2011 which are estimated to have cost ฿1.425 trillion.
As the world economy roils with trade tensions and ugly spats not just between the US and China, there is a growing mood of pessimism. On Tuesday, the Thai Finance Minister, Uttama Savanayana, promised that the government stood ready to take further action including more stimulus measures to prevent Thailand slipping into recession.
The Thai Finance Minister this week articulated some of the concerns felt in Bangkok at the damaging dynamics between China and the United States following the US President’s on the spot hike of tariffs on Chinese imports last Friday in response to a Chinese move to place tariffs on $75 billion worth of US imports.
Uttama Savanayana was forthright in addressing the fears that Thailand could dip into recession because of the deterioration in world trade and economic conditions. However, the Finance Minister made it clear that the Thai government still has reserves in the tank in order to launch further stimulus measures to prime domestic demand which along with private investment, is what economic planners are counting on to keep the country moving forward towards the end of the year.
Harder to pull the country out of recession if that happens, says Thai Finance Minister
The Finance Minister explained that if the country was to fall into a recession it would be a harder prospect for the government to pull it out. On the other hand, if the current situation could be managed then the Thai economy may rebound if world conditions start to improve.
World economic climate is the main cause of the slowdown being felt in Thailand right now
There is also a growing chorus of thought suggesting that the main driver of what is being acknowledged by the government as a slowdown is the troubled world economic environment which has seen Germany on the brink of recession and the Chinese currency drop to its lowest level in more than a decade.
The price of gold is creeping up to levels not seen since 2013 with the latest reports suggesting that several central banks are boosting their holdings of the precious substance. This is clearly a sign of what the market perceives as further trouble ahead globally.
Baht has been minutely weaker against the US dollar since July 1st but that may not last
At the same time, while most commentators even some with the Bank of Thailand, suggest that the baht will gain further against the US dollar on the back of an expected two further interest rate cuts in the US by the end of the year, what many people have not noticed is that the baht has not gained against the American currency since July 1st this year. In fact, it is minutely weaker. This is because the Bank of Thailand measures to curb what it terms ‘hot money’ have been successful. Thailand’s central bank is also reported to have further measures up its sleeve and a further rate cut by the end of the year is also thought to now be more likely.
Government now trying to manage a 3% growth figure for 2019 in a deteriorating climate
The Thai government approved a massive stimulus package only last week which Mr Uttama predicted would see ฿200 billion injected into the economy by the end of the year. The economic cabinet is hoping that its stimulus offensive will help bring in growth for the year at somewhere around 3%. This has to be weighed up against strong headwinds as the world economy begins to slow down further.
Priority to stop the ‘domestic economy from stalling’
On Tuesday, the Finance Minister said this: ‘We don’t know yet how the global economy will respond in the third and fourth quarters. We must develop our immunity to prevent the domestic economy from stalling, or investment will shrink and demand will be tepid. If that happens, the government will need to use a lot of resources to turn around the economy.’
The Minister has room to manoeuvre with the latest figure for Thai public debt showing that it has declined marginally to 41.3% of GDP at the end of June.
Short term bond yield spiked on Monday
On Monday, the SET had a bad day in reaction to the US President’s moves and comments on the previous Friday and over the weekend at the G7 summit. It all spells a growing strain between the US and China. There is now some suggestion that a rapprochement between the sides may no longer be inevitable and that we are witnessing a new world of trade divisions with bilateral trade agreements replacing the old global world order.
The yield curve for government bonds also inverted for the first time since 2001 when market confidence in Thailand was shattered by massive flooding that caused trillions in damage throughout the country and badly hit the kingdom’s industrial base. On Monday, the two-year bonds showed a higher return than the 10-year bonds.
Some good news, July tourist numbers were up by nearly 5%, tourist spending up over 3%
However, there was some good news this week with official figures showing that tourist numbers picked up in July by 4.7% on last year and those visitors spent ฿167.3 billion which was a gain of 3.11% on 2018.
It is too early to say if this a sign of a stronger tourism sector going into the end of the year. The tourist industry represents 12% of Thailand’s GDP and most importantly, the money spent by tourists goes straight into the parts of the economy that needs all the help it can get right now.