The key issue for Thailand’s economy remains US tariffs on Chinese imports as local firm Kasikorn Research predicts a further 2% contraction in exports for 2020. It suggests that the Thai government must focus on stimulus and soft loans for small businesses to weather the storm. However, it notes that the ‘Eat, Spend, Shop’ scheme will only add 0.02% to Thai GDP this year.

Thailand’s economy will continue to see a deterioration in export performance with the government focused on priming the economy through the harmful effects of the US-China trade war in the next half year or so. That is the outlook predicted by a respected Bangkok based economic research company this week. It comes as Fitch, the international ratings agency, at a presentation in Bangkok, painted a far more positive picture of the economy as well placed to weather the storm and resume more positive growth next year. The good news for foreigners is that it is predicted that the baht will stay at the same level until the end of the year and may weaken in the first half of 2020.

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Mr James Mc Cormack of Fitch, the ratings agency, painted a picture of a robust economy weathering a storm as he spoke at the Athenee Hotel in Bangkok this week. He said that the key question and positive for Thailand was political stability. Local firm Kasikorn Research was more pessimistic suggesting the Thai exports may contract by as much as 2% in 2020. This week, the Bank of Thailand Governor Veerathai Santiprabhob (inset) hinted at a further rate cut but pointed out that the Thai baht had not gained appreciably against the dollar since early July and that measures to curb speculation had worked.

There were again mixed signals this week about the Thai economy as a leading Thai research company downgraded it’s outlook on the economy’s prospects for growth next year and predicted a further 2% contraction in exports.

Mr Nattaporn Triratanasirikul of Kasikorn Research Centre predicted that the growth rate for 2019 will come in slightly under the government’s 3% target but this was still based on a final figure for exports which will show a 1% contraction on last year.  The figure to the end of August was 2.2%. The firm predicted even lower growth for next year.

Employment levels and incomes in the non-farm sector have dropped so far this year

It comes as Bank of Thailand Governor Veerathai Santiprabhob this week pointed out that employment levels in Thailand’s non-farm sector have declined as the slowdown in exports continues to translate into the economy with lower employment, income and overtime.

However, at the same time, the bank pointed to a very sharp drop in imports in August which gave Thailand a strong current accounts surplus for that month.

Strong current accounts surplus remains

It is this underlying current account surplus that many economists see as holding the baht firm and pushing it up against the dollar and other regional currencies.

However, for foreigners to Thailand, there is some hope on the possible future trajectory of the baht. Most economists at this point, are predicting it to hold at its current value against the greenback at least until the end of the year.

Kasikorn  Research is predicting a dollar to ฿30.50 by the end of the year and suggests that there may be room for it to weaken in the second quarter of 2020.

Next year no more room for Fed easing in 2020, baht may weaken in the second half

This is based on the assumption that the Thai central bank will cut interest rates one more time this year in response to cuts in the US and once in 2020 bringing the Thai benchmark rate to 1%.

It is felt that at some point, there will be no room for the Fed to ease rates any further and then we may see the beginning of a stronger baht.

This is also, of course, dependent on Thailand’s current account performance and if exports continue to contract as predicted, then this may eventually negatively impact Thailand’s current account performance.

This week, the Bank of Thailand boss, Mr Veerathai, pointed out that the bank’s measures to halt speculation in the Thai currency had been a success and since the beginning of July, the baht’s value has remained almost unchanged against the dollar.

The government must focus on economic stimulus

Despite the bleak prognosis from many commentators who now suggest that the government must simply focus on stimulus measures to prime the economy while the US-China trade war takes its course, there are still many who view the Thai economy positively. One of these is the renowned ratings agency Fitch.

Fitch rating agency upbeat about Thailand

In Bangkok this week, James Mc Cormack suggested that the Thai economy could grow faster next year and buck the declining growth rate trend on the world stage.

He attributed great significance to Thailand’s peaceful return to democracy which he repeatedly compared to Hong Kong’s deteriorating political status.

The ratings company executive even suggested that the agency may raise Thailand’s sovereign rating for the current BBB+ rating in the next 1 to 2 years if the country maintained its stability.

It saw both Thailand and Vietnam as the countries in Asia with the most promise

‘Eat, Shop, Spend’ will only add 0.02% to Thai GDP this year as government seeks to expand programme

Meanwhile, even as the Kasikorn  Research group highlighted the importance of government economic stimulus, it pointed out that under the current ‘Eat Shop, Spend’ programme which Deputy Prime  Minister and Economics boss Somkid Jatusripitak wanted to see extended this week, that the current ฿19 billion baht proposed expenditure which sees ฿10 billion handed to consumers, will only add 0.02% to the 2019 GDP figure.

The local firm recommends that the government focus on soft loans to small business to mitigate the fallout from the drop in employment levels and incomes caused by the constraints on Thai exports.

Huge impact of Trump’s swinging tariffs 

Also among the data produced by Kasikorn this week, one key estimated figure stands out. That is that Thai exports alone entering the United States this year are facing $1 billion to $2.5 billion in extra tariffs. At the same time, Thai direct exports to the United States are growing.

The problem is Thailand’s integrated links with the Chinese economy through supply chains. There is now also reported to be signs that some companies are relocating their manufacturing facilities to Thailand, particularly in the technology goods sector.

Thailand’s weakness is its close association with China in established supply chains

In one of the more cautious parts of by Fitch presentation this week at the Athenee Hotel in Lumpini, Parson Singha, a senior executive said this: ‘It used to be that if the US sneezes then the world would catch a cold, now, the updated version of this saying is that if China sneezes then Asia catches a cold.’

It is the story of Thailand’s economic slowdown which began in mid-2018 with swinging US tariffs being applied to Chinse imports.

Further reading:

Bank of Thailand governor warns about growing debt levels, calls for sufficiency economic thinking

Finance minister ready to take further action to prevent the Thai economy falling into recession

Trump causes jitters in Bangkok as he signals a further deepening of the trade war with China at G7 meeting

US China trade war may have some silver lining or upside for Thailand if firms can be agile and adjust

Thailand’s PM commits to a global world vision as the country signs up to China’s belt and road

Thailand’s economy impacted by the whims of the US President as much as its political future in 2019

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