The new Bank of Thailand boss, Sethaput Suthiwart-Narueput, is also signalling a more hands-off approach to the currency which since the start of November is second only to the Indonesian Rupiah gaining over 3% against the US dollar. Thailand is again a magnet for foreign funds with a 2021 tourism boom being targeted by financial investors who see the potential value. In the short and medium-term, however, there are additional challenges even though the National Economic and Social Development Council came out this week with a lower figure for projected GDP contraction in 2020 of 6% and a projected growth rate for the economy of 3.5% to 4.5% for 2021.
There is good news and bad news for foreigners and visitors to Thailand from a growing financial play by money managers worldwide who are again focusing on the kingdom and foresee the economy rebounding dramatically in 2021 with worldwide vaccine distribution allowing the reopening of the country to mass tourism driving a strengthening of the baht which is already leading investors to buy up Thai holdings and debt.
Financial markets that began to speculate on the Thai baht after the US Presidential election which saw it strengthening out of fears of a possible constitutional crisis stateside are now extending their bet based on the prospect of a global vaccine reopening Thailand to mass tourism sometime in 2021.
Markets are also buoyed by the finalisation of the world’s biggest free trade deal, the Regional Comprehensive Economic Partnership or RCEP, on Sunday, to which Thailand, and the 10 nation ASEAN bloc, is a pivotal partner.
Money managers are also eyeing increased borrowing by the Thai government to fund stimulus efforts to construct an attractive financial proposition as it is now expected that the Thai baht will strengthen further.
Foreign funds are again flowing into Thailand predicting a tourism boom in 2021 as a money play
‘Foreigners have been mainly buying the front-end of the Thai debt curve for exposure to baht gains,’ explained Poon Panichpibool, a strategist at Krung Thai Bank this week and speculated that the key exploit driving this financial punt was the potential green light to mass-market tourism expected to come in 2021.
New bank of Thailand boss is hands-off
The new Governor of the Bank of Thailand, Sethaput Suthiwart-Narueput, who holds his first Monetary Policy Committee meeting this week, has also indicated a more hands-off approach to the baht’s value despite signals of concern from the government and exporters over the currency which has appreciated by 3% since the end of October and now only lags behind the Indonesian Rupiah as Asian’s best-performing currency.
Upbeat predictions from NESDC for the economy
On Monday, the National Economic and Social Development Council gave an upbeat assessment of Thailand’s economic position in the aftermath of this year’s Covid 19 catastrophe.
The body, which has a good reputation, revised its projection for GDP contraction this year down to 6% suggesting that despite an 82% loss in foreign tourism earnings projected for 2020, exports would only contract by 7.5% and significantly, private consumption would only be off by just under 1%.
The body suggested that the contraction in the third quarter of 2020 was only 6.4% compared to a survey of economists by Bloomberg which had been projecting an 8.8% decline.
Figures are more optimistic than the current figures of the Bank of Thailand or the Ministry of Finance
The figure compares very favourably to the current estimates on record by the Ministry of Finance and the Bank of Thailand which suggest a 7.7% to 7.8% contraction.
The board, according to its Secretary-General Danucha Pichayanan, identified government-led expenditure and stimulus as key to what is now portrayed as a slow but emerging recovery into 2021 and suggested that growth of between 3.5% and 4.5% was possible for the new year.
Warning signs and challenges in the fourth quarter of 2020 and the opening quarter of 2021
Some, more sceptical analysts are more cautious and see Thailand’s export recovery being challenged in the fourth quarter by a higher baht and more significantly, growing lockdown measures in western countries including Europe, the UK and now with the same threat to the US economy where Democratic Party state governors have become more strident with the prospect of a Biden presidency in 2021.
Indeed, the projected incoming US administration, which Thailand’s leadership sees as promising a better prospect for growth in the medium and long term, may initially present short term challenges. The first and most immediate is strengthened action against Covid-19 which may see Thai exports to the US hindered.
United States market a key concern with a potentially negative initial impact of a Biden Presidency
The United States has been a key market for Thai exports in 2020 where the kingdom, in a welcome exception to the year’s overall trend, has seen remarkable growth compared with a contraction in exports to the European Union and other world markets, excluding China, felt in 2020 so far.
In September, Thailand saw a 19.7% growth in exports to the recovering US economy while recording a 6.9% jump in exports to China.
Similarly, for the year, the figures show an 8% gain in the United States market as exports, overall, were down significantly with a smaller 3.7% gain in China.
Tourism loss will be more heavily felt in the next 6 months as millions remain underemployed
There is also concern that figures for the fourth quarter of this year and the first three months of 2021 will show a sharper impact linked with the devastation, now being experienced in the foreign tourism sector, which normally accounts for itself far more significantly in this period.
Added to this is a stubbornly high level of unemployment which is quite unusual for Thailand with up to 800,000 people seeking work, 3 million working on reduced hours and income, massive household debt, a glut of unsold properties in all key local markets and the mood of optimistic hope, being struck right now, may still seem somewhat premature.