Given the external factors and the relatively small size of the Thai economy, the government and economic chiefs are doing what it has to do in 2020 – responding to needs where they exist to protect the real economy from further damage.

Thailand’s central bank has eased borrowing restrictions for new homes valued at least than ฿10 million in an effort seen as designed to prime the property market and stimulate the economy. It comes alongside moves by the government to inject more liquidity into the system particularly to support small and medium-sized businesses hit hardest by what, in many sectors of the economy, was a downturn in 2019.

The relaxation in lending criteria for new properties allowing borrowers 10% more for furniture and decorating was announced on Monday by deputy bank governor Ronadol Numnonda. It comes in addition to a further relaxation in conditionality for those purchasing second homes. Meanwhile, the Thai government at a meeting of officials at the Finance Ministry announced measures to boost liquidity in the system as the 2020 budget is being passed and concerns remain about the external environment. The baht has weakened since year’s end with renewed efforts to bring it under control.

Thailand’s central bank on Monday announced a relaxation of its lending criteria governing mortgages or loans for residential properties valued at ฿10 million or less.

It comes in a week in which the government appears to be coordinating a drive to inject liquidity into the Thai economy as the external world economy remains still a threatening prospect.

A further 10% on loans for furniture and decorating

The relaxation in the lending criteria was announced by deputy bank governor Ronadol Numnonda. The move allows for a further 10% to be borrowed to provide for furniture and decorating of new properties. In addition to this, the criteria for loans in respect of 2nd home purchases have also been amended.

Relaxation of a condition for second homes

In this instance, it means that those purchasing a second home can borrow at 90% with a 10% deposit on the proviso that mortgage payments on their first or existing property are in order and that this has been the case for the last two years. Before Monday, the condition stipulated three years. Otherwise, the deposit requirement is 20%.

Ministers met on Monday amid a range of efforts to boost cash flow for small and medium-sized business

Meanwhile, also on Monday, the secretary-general to Thailand’s economic ministers, Kobsak Pootrakul revealed additional measures after a meeting held at the Finance Ministry driven by Thailand’s economics czar and Deputy Prime Minister Somkid Jatusripitak.

The focus of a meeting of economic chiefs at the Ministry was a campaign to boost liquidity in the banking system targeted particularly at small business.

‘The meeting was held because the global economy affects the Thai economy more than expected. Pending the 2020 budget, additional money has not been injected into the economy. We must boost liquidity to support the economy,’ said Mr Kobsak.

State-owned banks announced schemes for business loans for working capital and investment

It is also being reported that special schemes are being made available through Thailand’s state-owned banks to facilitate the purchase of machinery and investment in industrial manufacturing from abroad as well as to provide increased cash flow to small and medium-sized firms reeling from last year’s economic set back which impacted these firms harder.

The Export-Import Bank of Thailand has announced lending schemes for firms buying machinery from abroad while the Government Savings Bank (GSB) has set aside up to ฿50 billion for an innovative working capital loan for businesses seeking term loans over 6 years with a years grace on principal repayments.

Drought and delay in applying the 2020 budget

The Thai government has consistently claimed that there was a rebound in domestic consumption towards the end of 2019 but there are now concerns over the effects of drought on agricultural output and the complications in applying the government’s budget for 2020 for which is bill is currently before the House of Representatives.

The World Bank this week predicted a growth rate of 2.5% in 2020 of the overall world economy. It has warned of an export slowdown for developing economies and a lack of investment impacting further growth prospects.

Weakening of the Thai baht in recent days

However, for Thailand, there have been some hopeful signs in the opening days of 2020. The baht appears to be trading more stably and weakened to ฿30.57 against the dollar briefly on Friday 17th January although it has gained since then to ฿30.35. This level, however, is still far short of the ฿30.50 which The exporters say is required simply for exports to hold their own this year. 

Economy linked to the baht’s trajectory

They have warned that any further strengthening of the baht in 2020 will see corresponding drops in exports. Last year, Thailand lost 7% of its agricultural exports and 6% of manufacturing exports attributed mainly to the overvalued currency.

Bank of Thailand taking a stand on the baht

This weakening of the baht has been attributed to a comment from the Bank of Thailand that it stands ready to take further action on what it agrees is an overvalued Thai baht. Concerns have been raised about robust intervention by the bank on the market to prevent the baht from strengthening further. 

The bank itself has pointed this activity out and ended 2019 with over $227 billion in US dollar reserves which are projected to reach $243 billion in 2020. This makes the bank the 12th largest holder of dollar reserves in the world.

Baht may have reached ฿25 to the dollar without central bank intervention say some experts

Some experts have pointed out that where it not for the intervention of the bank, the baht would have soared to somewhere between ฿25 to ฿28 to the dollar by the end of 2019.

For now, the bank’s actions including effective move to control speculation, easing of capital outflows and interest rate cuts have at least proved effective at stabilising the situation.

Value should be ฿33 to ฿35 according to fundamentals

The Bank of Thailand governor has said that the current value of the baht is not inline with Thailand’s economic fundamentals at this point. Most analysts accept this and suggest that an appropriate rate of ฿33 to ฿35 to the greenback.

New US-China trade deal – a tentative, positive step

The signing of the US-China phase 1 agreement in Washington last week is looked on as a positive development for the Thai economy dependant on exports.

The US has also moved to remove China from its currency manipulators list. The baht has also, in recent weeks, been weakening against the yuan

US sets its sights on Europe

On a more cautious note, observers are warning of an escalating trade war between the US and Europe, while the Chinese economy has yet to recover to past growth levels. The European Union is Thailand’s third-largest trading partner and is currently experiencing lacklustre growth.

There is also concern that the implementation of the US-China deal may be problematic as China has a poor track record in adhering to past trade agreements.

Tariffs remain in place on a huge range of Chinese goods being imported into the United States pending a further deal being hammered out.

American duties on Thai exports from April

Thailand is also due to lose its preferential status under American’s Generalised System of Preferences (GSP) in three months on April 25th. This will see 30% of Thai exports hit with charges ranging from 0.1% to 25% with an average of a 4.5% duty.

Government responding where it is required

The array of measures being announced by the government in recent days appears to be aimed at priming the economy as it waits for some improvement in the external environment.

It is a shorter-term government response rather than talk of grand projects or lofty goals for the Thai economy where such a response is presently required.

Further reading:

Electricity price freeze requested by Deputy PM to help Thai households cope with the slower economy

Battle against the bully baht to save the Thai economy from further economic slowdown in 2020

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