The Thai government is heavily constrained in its ability to manage this economic challenge driven by a lengthening range of negative factors such as Covid 19 turmoil worldwide, a strengthening baht, the beginning of a property market decline and now, to cap it all, the rising spectre of not just a cold war between the US and China but the hitherto inconceivable prospect of hot war as military tensions between the two powers both surrounding Taiwan and in the South China Sea have escalated alarmingly since the Covid 19 crisis began. At home, the scale of the economic emergency in Thailand could see up to 8 million jobs lost this year according to the Chairman of the Thai Chamber of Commerce, Kalin Sarasin.
The names of six new government appointees and a surprise promotion for Foreign Minister, Don Pramudwinai, were announced on Thursday. Mr Don is to become a deputy prime minister while former PTT executive, Supattanapong Punmeechaow, is the government’s new economy czar and energy minister. The appointments come as the economic storm surrounding Thailand due to the Covid 19 crisis and still escalating US-China tensions threatens to grow even darker with millions facing unemployment. Now the threat of a dramatic deterioration in property prices, as the economy contracts on all fronts, presents the new team with a daunting challenge to overcome. It follows a revelation, this week, by a GSB Bank executive that condominium prices in Samut Prakan, south of Bangkok, nosedived by 36% alone in the second quarter of the year.
The Thai Royal Gazette confirmed the appointment of six new ministers to the government on Thursday including a new deputy prime minister who will lead the country’s economic team.
The incoming economic czar, however, is not Predee Daochai, who has been named as Minister of Finance, but Supattanapong Punmeechaow, a former executive with PTT who will take up the role of Energy Minister as well as Deputy Prime Minister.
PTT is a SET-listed company in the oil and gas business which is also controlled by the government.
Incoming ministers face a daunting challenge with exporters warning of at least a 15% contraction
The appointments will be finalised when the new ministers are sworn in before the King at a ceremony to be announced shortly.
The incoming economic team is facing a growing economic storm with a floundering performance now on all fronts.
This includes an urgent warning from the Thai Shippers Council on Tuesday delivered by Chairwoman Ghanyapad Tantipipatpong when she indicated that exports for 2020 will be down by up to 15% with a trend that is worsening as external markets for Thai products are left in disarray due to the ongoing effects of the Covid 19 virus with governments worldwide failing to come to grips with the pandemic leading to a sharp fall off in consumer expenditure and demand.
Tensions between the US and China have flared up to historic levels that have alarmed seasoned experts
Thailand’s vital export performance, which is the key basis or foundation of the modern Thai economy, has been hard hit in the last few weeks also by a strengthening baht and unprecedented tensions and hostility between the United States and China which threatens not only a new cold war but now risks the real possibility of open hostilities, according to former Australian Prime Minister and expert on China, Kevin Rudd, this week.
He warned that we are now in a situation that could possibly result in an all-out hot war or military conflagration between the two powers.
He has acknowledged that this was something that was thought inconceivable right up until recent weeks
International affairs experts, both in China and in western countries, are warning that a serious threat of war now exists between the two powers on their present course over a range of issues.
They warn it could also leave it up to other world powers such as Europe, the UK, Australia and even ASEAN countries to decide their position as the perceptions of China and its behaviour have both shifted unalterably following the Covid 19 catastrophe. Experts in Beijing deny this, however.
Worst relationship in the diplomatic era
All agree that the rising conflict and deteriorating relationship between China and the US have left ties between the two powers at a new low. It is the most dangerous and volatile situation since diplomatic relations between the two powers commenced in the 1970s.
There are now heightened military tensions both in the South China Sea over China’s increasing network of militarised man-made islands and over Taiwan, which has reported unprecedented and threatening levels of Chinese military activity off its coast.
Thailand has not benefited substantially from supply chain movements out of China which are ongoing
It goes without saying that the economic effects of hostilities or a war between the countries would be catastrophic for Thailand. It will also threaten economic prosperity and security across the region.
Indeed, indirect effects of a new, more strained relationship between not just the US but the rest of the world and China are already being felt as Japanese, American and South Korean firms move supply chains and production capabilities out of China.
However, the potential for Thailand to gain from this has not yet materialised or been muted with manufacturing facilities in the kingdom still underutilised with rising numbers of workers being made redundant.
Economic indicators flashing as firms, both large and small, continue to fail with rising non-performing loans soon to move to bank balance sheets
In addition to the woes in the export sector, Thailand’s domestic economy is suffering from rising unemployment as firms, large and small, are failing due to lower consumption, lower export orders and the loss of ฿1.5 trillion in foreign tourism earnings this year from external tourism.
The government’s response to the crisis is necessarily defensive but has also been hampered by political changes and delays in the country’s hitherto ambitious capital programme from which budgets have been diverted to pay for expensive subsidies and supports to deal with the collapse of the tourist economy and the extensive shutdown to the whole economy it imposed in April.
In the banking sector, banks have just begun to apply higher bad debt charges as rising non-performing loan rates emerge. This has led to a tightening of credit across the board which is now feeding into the property market.
GSB Bank sounds warning about the property market in Samut Prakan, 36% drop in second quarter
GSB, the Government Savings Bank and one of the leading banks acting as a conduit for supports to small business and low-income workers during this crisis has reported, this week, that the property market in Samut Prakan, the province to the south of Bangkok, saw a 36% drop in the value of condominium units in the second half of the year.
Wichai Wiratkapan is the deputy director of the bank’s data centre. He highlighted the trend and explained his findings: ‘Owners of property projects have been cutting prices to increase sales in the hope they can regain liquidity due to the economic contraction caused by the Covid-19 crisis,’ he said. ‘Condos in Samut Prakan are selling at 36% cheaper than last year’s prices, while townhouses are going for around 32% cheaper to attract customers.’
Drop in property values to impede bank lending
Although the bank noted a slight rise in the value of city-centre properties in Bangkok for last year and a slight drop in value in the last quarter, it is not unusual for prices at the centre of a property market to hold up and be last to fall when an overpriced market contracts.
The property bubble in Bangkok and other key hotspots may be about to pop.
Commenting on the bank’s data, Mr Wichai pointed out that the deterioration in prices in the province was due to an oversupply but warned that this could easily feed into the value of second-hand properties. He also warned that the trend could reduce the ability of the bank to afford loans to property purchasers.
Top Thai industry leader welcomes new Minister of Finance Predee Daochai, wants taxes cut
On Thursday, the appointment of Mr Predee, a former Chairman of the Thai Banker’s Association and Kasikorn Bank president, was welcomed by Supant Mongkolsuthree, the President of the Federation of Thai Industry.
Mr Supant called on the government to establish a new centre to manage an intensive effort to get the country back on its feet following the Covid 19 emergency.
‘We will coordinate with him very well,’ Mr Supan said. He wanted priority given to making up to ฿50 billion in supports available to small and medium-sized business.
He also urged the government to cut business taxes at this time.
New cabinet sees former government spokesman take up a new ministerial role at the Labour Ministry
The new cabinet lineup, as predicted, includes Palang Pracharat secretary-general, Anucha Nakasai, as a minister at the Office of the Prime Minister.
Mr Anek Laothamatas of the ACT Party becomes the new Minister of Higher Education while former government press secretary, Narumon Pinyosinwat, assumes her first ministerial role as Deputy Labour Minister. The senior minister at the Ministry of Labour will be Chonburi Palang Pracharat MP, Suchat Chomklin.
One of the surprises to emerge on Thursday was that Minister of Foreign Affairs, Don Pramudwinai, was not only retained in the role he has played since 2015 but has also been appointed deputy prime minister.
Exporters more worried as 2020 moves on
The economic front, meanwhile, continues to darken.
Ms Ghanyapad of the Shippers Council made it clear this week that the situation was certainly more negative than positive. She said many of her members were worried at the prospects for 2020 going forward.
Her prognosis was amplified by the Chairman of the Thai Chamber of Commerce, Kalin Sarasin, who predicted that exports would fall by 12%, slightly more optimistic than Ms Ghanyapad’s exporters.
He raised his prediction for the level of contraction of the economy to a figure of anywhere between 7% and 9% for the year.
The current Bank of Thailand estimate is 8.1% but the outlook is grim.
Thai Chamber of Commerce boss highlights mass unemployment as the most serious concern
Mr Kalin said that people in business are most concerned about rising unemployment caused by a loss of exports and growing uncertainty outside Thailand, now nearly six months since the crisis erupted. He predicted that between 7 to 8 million people could lose their jobs and livelihoods this year.
He also expressed his concern at the huge loss of income on foreign tourism earnings being suffered by the kingdom.
‘Adding to the pain, recent baht appreciation has not been positive for exports,’ he said. The Thai baht has gained against the dollar by 2.5% alone since the 20th of July.
On Wednesday, the Bank of Thailand attributed this appreciation of the currency squarely to rising negative economic sentiment in the United States, Thailand’s largest export market.
Much of the kingdom’s exports in Southeast Asia are also priced in US dollars and are highly susceptible to a sudden appreciation of the baht.
10,000 foreigners with links to foreign-owned firms may be cleared soon for entry into Thailand
Mr Kalin called on the government to speed up permission for business owners and experts to be allowed into the kingdom even under quarantine rules, at this time.
This received a positive response from the Centre for Covid 19 Administration on Thursday which indicated that it was looking at this with a view to approving the proposal.
However, the spokesperson indicated there were as many as 10,000 people with links to foreign business concerns in the large queue for foreigners seeking entry to Thailand right now with limited inward processing capacity.