The Deputy Secretary-General at the Office of the Prime Minister Kobsak Pootrakool this week highlighted the ‘worrying’ situation that the Thai economy finds itself in and pledged the government’s support for small business, a sector which is especially vulnerable, including a new package of stimulus measures at the end of this month.

Thailand’s economy this year according to its exporters and key economic forecasters will depend on one thing, the value of the Thai baht. Already, one of Thailand’s leading commercial banks, Krung Thai and its chief strategist Jitipol Puksamatanan is predicting that it will drop to ฿28.7 to the dollar which according to a body representing exporters will see a bigger slowdown in 2020 than we had in 2019. However, the Bank of Thailand is pledging to battle to keep the currency above the psychological ฿30 to the US dollar mark while some international analysts are predicting an even bigger upside with the baht losing out to other currencies in the region.

This week the Chairwoman of the Thai National Shippers Council Ghanyapad Tantipipatpong (left), presented information that suggested a direct correlation between the value of the Thai baht and Thailand’s export figures for 2020. It comes as Krung Thai Bank and its chief strategist Jitipol Puksamatanan (right) has forecast a dollar to baht value of ฿28.7 at the end of 2020 which is not good news for the Thai economy. The leading commercial bank also predicted a third interest rate cut by the central bank in 2020 bringing rates to an all-time low of just 1%.

As Thailand’s economy enters the new year, it’s export industry representative bodies are urging the government and the Bank of Thailand to rein in the Thai baht and have predicted dire consequences should the currency appreciate in 2020 as it did in the past two years.

A massive 70% of the Thai economy is based on exports and over the last two years, the kingdom’s export-orientated firms have been left reeling from the appreciation of the Thai baht not just against the dollar but a basket of currencies in Asia which has seen these firms lose 17% of their income off the top.

Slower export growth stymied wages and employment in 2019 driven by a vigorous Thai baht moving higher

This has precipitated a sharp slowdown in growth and wages. In recent months, it has also seen a dangerous uptick in job losses. Another key outcome has been a lowering of investment by Thai firms which, if maintained, will lead to an even deeper economic malaise in a country already suffering from the disruption to economic supply chains wrought by the US-China trade war.

Thailand faces a long term demographic challenge and already has a chronic household debt problem. Indeed up to 2019, the twin pillars of growth, Thai exports and tourism, helped to camouflage the country’s underlying problems. That came to an end in 2019.

Exports fell by 2.8% in the first 11 months of last year

Last year, Thailand’s exports fell by 2.8% in the first 11 months and economic growth came in at 2.5%. For 2020, the kingdom is targeting economic growth above 2.7% but this is based on achieving export growth of 2.3% according to Thailand’s National Economic and Social Development Board.

Exporters meeting the Bank of Thailand

On Friday, a representative group of Thai exporters will meet the Governor of the Bank of Thailand, Veerathai Santiprabhob, to discuss the future path of the Thai currency.

A further meeting between officials of the bank and representatives of the Thai National Shippers’ Council is scheduled for January 16th.

Shippers Council flagged the problem early last year

This body, led by its chairwoman Ghanyapad Tantipipatpong, has since the beginning of last year flagged the problem.

Since then, the Bank of Thailand has begun taking action and a government consensus emerged in the latter half of 2019 that the bullish baht needs to be tamed. This week, the exporters’ organisation put the situation in bald terms to the government.

Fighting this year to hold exports steady with room for a 1% upside but fears of a further contraction

Experts are predicting that at a dollar to baht value of ฿30.50 this year, Thai exports have a fair chance of holding their own or even appreciating by 1%. The figure for exports is predicted at $250 billion. This is already well below the 2.3% growth rate projected by the government’s economic agency.

Beyond that, however, exporters are warning that an appreciation of the Thai baht to ฿29 in the dollar to baht ratio will see Thai exports shrinking for 2020 to $243 million or another 2.8% contraction. More worryingly, if the baht strengthens to ฿28 against the dollar, this will see a catastrophic drop in export income to just over $237 million or a drop of 5%.

Conflicting expert opinion on the path of the baht

There are conflicting predictions as to baht’s trajectory in 2020. It is currently valued at ฿30.31 having dropped below the psychological level of ฿30 in the last hours of 2019 on what the officials in the Bank of Thailand described as an anomaly caused during light trading for the holiday period.

Krung Thai predicts bad news for the export sector

Krung Thai Bank, which has an impressive record in recent times for predicting the Thai baht’s value, is suggesting that the Thai currency will indeed fall again next year and will end the year at ฿28.70 to the dollar. According to Thai exporters, that would predict an even more devastating year ahead for Thai exporters with a contraction in excess of 3%.

Currency came back from below ฿30 in the first week of 2020, some analysts suggest it will weaken

However, it is difficult to predict what will happen to the baht in 2020 since its performance has so diverged from the Thai economy’s fundamentals. In the last week alone, the baht seemed to strengthen as fears rose of an escalation in hostilities between Iran and the US in the Gulf.

There are also large financial institutions in western countries who still hold the belief that the baht will weaken substantially in 2020.

Rabobank, before the end of the year, predicted a rate of ฿33 to the dollar at the end of 2020.

Predictions that the baht’s good run will end

There is also a feeling in some quarters that the baht’s god run may be coming to an end with other Asian currencies offering better value.

It would also be a mistake to dismiss the efforts by the Bank of Thailand which have slowed the baht’s rate of appreciation from the end of June 2019 to now to a rate of 1.3%.

Bank of Thailand preparing to defend the baht at ฿30 to the dollar as the year begins with uncertainty

This week, executives within the Bank of Thailand were indicating that the bank would defend the ฿30 to US dollar value with measures to restrain the Thai currency’s value in the course of 2020.

Don Nakornthab is a senior executive with the bank’s economic and policy department. He has long recognised the imperative of working to rein in the currency. He said this week that the bank’s monetary policy committee was recommending the second stage of measures to relax outflow controls. 

These moves, as well as the moves last year to curb speculative inflows, have been effective in braking the baht’s appreciation towards the end of 2019.

Krung Thai Bank predicts another interest rate cut

At the same briefing this week, the Bank of Thailand Governor, Mr Veerathai, also pointed out that the bank would be reluctant to raise interest rates even if there are some signs of an increase in inflation in 2020.

The bank has already lowered interest rates to a record low of 1.25% but Krung Thai Bank’s Jitipol Puksamatanan, who is the chief strategist with the government-run commercial bank, is still predicting a third interest rate cut of 25 points during 2020. ‘The central bank’s tools on the baht now are only verbal intervention and a rate cut,’ he outlined.

This view was endorsed by Komsorn Prakobphol, a top investment strategist with Tisco Financial in Bangkok. ‘The central bank still has room to cut its key interest rate further to help stem the baht’s gain and spur the economy,’ he pronounced this week.

Government signals its intention to support Thai small business in 2020 to access capital

Meanwhile, the government itself is tackling the new year defensively and has been highlighting its determination to assist the small firm sector that was hardest hit by the slow down this year.

This week, Kobsak Pootrakool, the deputy secretary-general at the Office of the Prime Minister who also works closely with Deputy PM Somkid Jatusripitak, expressed deep concern about the possible escalation in aggression between the US and Iran in the Gulf after the US killed a top general and Iran responded with a missile attack.

Thailand’s economy faces a ‘worrying’ outlook

The key official described the current external economic environment and Thailand’s vulnerability as ‘worrying’ while promising that the government was already looking at stimulus measures to assist Thailand’s business at a grassroots level.

The government official said ministers and official we looking at ways to allow smaller firms better access to capital.

Further reading:

Economy continues to spiral downwards as the baht breaks the ฿30 barrier in the other direction

Thailand cannot afford another year like 2019 and the borrowing stakes are getting higher moving into 2020

Outlook for the Thai economy is bleak and will get bleaker due to its rapidly ageing population – biggest issue

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