On the positive side, there are three bright hopes. One is a decline in the value of the Thai baht against the expectations of financial analysts in Thailand but in line with the Bank of Thailand thinking and some international financial institutions. The second is an improvement of world economic stability and trade particularly in the period leading up to the US Presidential election in November 2020. The third and probably less significant driver would be a pickup in public investment and expenditure on capital projects in 2020.

As Thailand moves into the last days of 2019 and on to 2020, we can only say one thing for certain. It cannot afford another year like this one and yet the list of problems facing economic planners is wider and more threatening than last year.

The government led by Prime Minister Prayut Chan ocha and economic boss Deputy Prime Minister Somkid Jatusripitak (inset) guiding the Thai economy, will be hoping that the Thai baht declines next year and that a more positive trade environment emerges to lift Thai exports. In the meantime, the Governor of the Bank of Thailand Veerathai Santiprabhob will also be hoping for a lower-valued baht and to make progress on curbing Thailand still rising household borrowing while keeping Thailand’s banks on course to maintain stronger protection against bad debts as well as sustained profitability.

The country’s best hopes for a recovery next year are founded on a revival of the world economy even with a continued trade war between its two biggest markets, a decline in the value of the Thai baht and greater public expenditure on infrastructure projects such as the high-speed rail line between Bangkok and the Eastern Economic Corridor.

However on the other side, the danger of recession may not be the biggest concern for the government, it is the high level of private borrowing in the economy which despite the slowdown in economic growth has continued to accelerate.

Kasikorn Bank on Wednesday highlighted its concern about SME lending and warned that non-performing loans in this area could rise to 5 or 6% in 2020.

The briefing was given by senor K-Bank Vice President Wirawat Panthawangkun.

Borrowing in Thailand continues to grow

In recent weeks. the Bank of Thailand has itself highlighted the continued growth in personal borrowing particularly among younger workers, which is well ahead of the meagre growth rate of the economy as well a startling high pattern of default activity.

The spectre of recession looms

The Thai government is facing the spectre of the economy falling into recession next year if the export-led economy continues to be hampered by the high-value of the Thai baht and geo-economic tensions.

The economy narrowly avoided falling into a technical recession in questers 2 and 3 this year.

The range of economic problems facing Thailand as 2020 dawns is growing and the country will be lucky to achieve anything like 3% growth in the following year.

On Monday, K Bank Research, cut its predicted growth rate for 2019 to 2.5% and predicted a 2.7% growth rate for 2020.

Hopes for a weakening Thai baht

However, the prediction for 2020 was so qualified as to mean that in reality, all bets are off for next year.

Ironically, a key and emerging bright spot may be that even as the bank assumes a  strengthening Thai baht, there are hopes that the Thai currency may falter somewhat in the coming months giving exporters some respite from what has been a severely damaging trend. 

Growth projection of 2.7% in 2020 based in export growth

On the other hand, the 2.7% growth rate assumes that exports will grow next year and certainly not slip any further.

Thailand’s export this year to October 31st have contracted by 2.35% due to economic turmoil caused by the US-China trade war and the Thai baht’s appreciation against the dollar.

Drought problems on Thailand’s farms

One of the overlooked problems this year has been the initial decline in rice output and other crops as the farm sector was hit by severe drought at the beginning of the year caused not just by climatic conditions but also the increasingly perturbing situation caused by Chinese dam building on the Mekong river and also dam projects in Laos.

August rains helped revive the rice crop for 2019

This brought about a situation during the year where farmers had to be told not to plant new crops until water levels returned. Of course, later in the year, the country suffered severe flooding which also aggravated the situation. 

Thailand’s rice crop this year, however in spite of this, still managed to grow by 1% but exports because of the Thai baht were down 19%.

Agriculture still a key factor in Thailand’s economy

Thailand’s economy is still very much underpinned by the agriculture sector representing at least 40% of all employment in the country.

 The first indicators for the government will be how long the dry season will last. Right now, dam levels are already reported to be very low.

Nearly 25% of Thailand’s rice harvest is brought in during March and April with the dry season or Thai summer beginning at the end of February. Last year,  the dry season as on average 1 to 2% warmer than normal.

Emergence of political tensions but as yet no instability

There is also the possibility of another factor that may put Thailand’s economic planners on the defensive next year. That is the possibility of the strengthening of political tensions or even the possibility of instability.

On Wednesday, the 11th December, Thailand’s Election Commission sent a recommendation to the Constitutional Court for the dissolution of the country’s radical and third largest political party Future Forward which won 81 seats in the March 24th election.

This move was made on legally valid grounds under Thailand’s strict constitution and the governance of political parties and activities.

The leader of the party, Thanathorn Juangroongruangkit, has repeatedly warned of such a prospect and beyond that, protests if the party is sidelined.

Government more vulnerable and dysfunctional

In recent months, the 19 party governing coalition has looked vulnerable and recently lost a vote in parliament.

Issues such as a controversial chemical ban on pesticides and herbicides have also led to tensions and dysfunctionality within the government itself at official and senior ministerial level.

At the beginning of 2020, there will be a protest in January when student activists are planning a ‘run’ to oust the prime minister.

 It is thought that there is a singular consciousness at this time among the ordinary public against any steps that may undermine the current stable albeit fractious government.

However, this may not be the case among urban students and younger voters if the Future Forward Party is disbanded.

Key to the rebound of the Thai economy – a weaker baht

For now, Thailand is counting on two key developments to see a recovery of the country’s fortunes in 2020. One is the possibility that the Thai baht may begin to weaken.

Thai firms see a rising baht. Bank of Thailand and international financial giants see a lower valued Thai currency.

Rabobank sees ฿33 to the US dollar next year

At present, many financial research companies and forecasting bodies in Thailand are predicting that the Thai currency, the baht, will rise but the Bank of Thailand itself and a range of other international financial bodies including JPMorganChase, Standard Chartered and Rabobank see it falling off in 2020. The latter sees the Thai baht weakening by as much as 10% against the US dollar by the end of next year to bring it back to ฿33 to the greenback.

The Deputy Governor of the Bank of Thailand Mathee Supapongse is also among those who believe the baht is on the way down.

Thai experts say baht will slide further

Some Thai analysts, however, insist that the Thai currency will continue to strengthen against the US dollar. They predict a dollar to baht value of as low as ฿28.7 next year. They base this on anticipation of another US interest rate drop early next year and the continuing flight of capital to safe havens.

However, this week saw financial capital fly in the opposite direction with the US reported surprisingly bullish payroll numbers and lower unemployment with the American economy recorded the lowest unemployment rate in 50 years.

PM urged action last week to weaken the baht

Last week, the Thai prime minister urged business people and institutions to use dollars to counter the appreciating currency.

This followed pronouncements by the Bank of Thailand boss Veerathai Santiprabhob indicating that the bank is looking at all the powers at its disposal to deal with the matter which is so pressing when it comes to Thailand’s economic prospects.

Pickup in world trade in spite of the US-China trade war

The second development that would rescue Thailand’s economy from the current sloping performance would be a breakthrough in the US-China trade war. 

There is talk of a first stage agreement which has been repeatedly postponed but looking beyond this, there appears to be a rapidly deepening rift between the United States and the Chinese economy. 

Deepening divisions between the United States and China

This week, for instance, the Chinese government announced a programme to replace all US-made technology across the country while in the short term, the US is readying to impose further, widespread and hefty tariffs on Chinese goods from the middle of this month. 

It has also to be said that the US policy predicted to be disastrous by international commentators at the outset of this presidency is not performing according to expectation at least as regards its impact on the American economy so far.

In the final analysis, many commentators are now coming to believe that as long as the current US administration is in power there will be no going back to business as unusual or a consensus.

This is not good news for Thailand at least at present.                                                  

Household debt and overall private bank borrowing is the biggest concern

Also on a more negative note, the greatest fear for Thai policymakers may not even be falling into recession.

It is still the threat to financial stability from nonperforming loans linked to household borrowing and private business borrowing that poses the real risk to Thailand’s financial stability and which could be the trigger to provoke a crisis.

In the course of 2019, this has not been an issue

This year, the Thai banking system has done remarkably well not only in managing the economic downturn but also in reporting bumper profits while also complying with Bank of Thailand moves to strengthen balance sheet provisions.

However, next year this will be tested further as household debt continues to rise.

This week, Moodys downgraded its assessment of banks in the Asia Pacific region suggesting the current economic pressure caused by US trade policies will impede economic growth.

Moody’s downgrades for all Asia Pacific banks

Moody’s, in fact, downgraded all banks in the Asia Pacific region. However, on a more positive note, it flagged progress by many banks in the region in deleveraging.

Thailand’s banks have recently been praised by both leading world rating agencies after the Bank of Thailand introduced new higher levels of reserves with new accounting policies this year which the commercial banks were in a position to meet.

McKinsey and Co continues to warn of banking storm hitting the Asia Pacific region

A  Mc Kinsey report in 2016 warned that banks in the Asia Pacific region were heading into a storm and even this year, the renowned and prestigious management consulting firm, updating its position, saying that the storm had worsened and was beginning to slow macroeconomic growth.

Thai banks may be prepared by are coming challenges

This to some extent is a worldwide trend and as we suggest, the Thai banking system has been prepared.

However, 2020 will see Thai banks under pressure with limits on lending growth, tighter margins because of lower interest rates and moves by the government to curb credit and excessive fees.

The fear is that Thai banks may end up battling against rising bad debt levels both in the business and personal sector. This will be occurring as interest rates continue to be low and at a time when the Bank of Thailand is moving to regulate banking fees while it has also threatened to intervene to curb lending if the current trend in rising personal debt continues.

Tourism continues to be a strong economic asset to Thailand

Then there is the tourism sector. Recent estimates put its value at 18% of GDP. It is a uniquely important economic asset to the kingdom but predictions of growth or decline this year have become unreliable.

Throughout the year there have been contrasting and contradicting narratives both between official sources and industry bodies on whether Thailand’s tourism industry is in growth or decline.

For many traditional tourist hotspots such as Phuket, Pattaya and Chiang Mai this year, there are strong reports from industry sources of decline certainly in occupancy rates.

All we can say for certain is that the country continues to be major tourist destination and that the profile of tourist visitors to Thailand in the last decade has become more of Asian, one showing particular growth in Indian tourists.

We also that it is facing competition from neighbouring countries such as Cambodia and Vietnam.

International economy controls Thailand’s export performance even more than the value of the baht

The question of whether Thailand could slip into recession next year hinges on the world trading environment more than any other factor. A final resolution to the first stage Brexit and a need by the US President to have the American economy stable towards the end of the year may tend towards an improved climate.

Already, we are seeing tentative signs of improvement from China and even from Germany where business sentiment is slowly climbing out of the doldrums.

Cannot endure another annus horribilis

Thailand cannot afford another economic annus horribilis like we have seen in 2019 as sooner or later the country must begin dealing with the high levels of household debt.

It could be a year where the government, by maintaining political stability aided by the Bank of Thailand while shepherding the banking system, withstands the problems seeking to guide the country forward. 

Alternatively, we could see an upside with a weaker Thai baht, increased government spending through capital programmes and a pick up in world trade as the US administration adopts a more benign approach to world economic growth.

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Further reading:

PM’s speech may signal a tougher line in dealing with the Thai baht now thwarting growth of the economy

Thai economy remains sound says Fitch the ratings agency as the baht’s surge may be over for now

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