Vice President at Siam Commercial Bank Yanyong Thaicharoen shared an economic assessment from the bank’s Economic Intelligence Centre this week. He predicted growth this year of 6.3% and inflation at 4.9% provided the conflict concludes in the short term. The key thing that all forecasters agree upon is that the ongoing war following the Russian invasion of Ukraine is sparking unprecedented global economic uncertainty and downside risks as western nations wage an increasingly no-holds-barred economic war against Russia that both sides dare not lose. This is highly damaging for Thailand’s prospects as government and business leaders battle to drive the economy forward in 2022 with higher exports and foreign tourism arrivals. The war has already seen ฿124 billion fly out of Thailand’s bond market to March 28th last.

Thailand could see inflation reach 6.3% this year if the war in Ukraine is prolonged, forecasted a senior bank vice president this week as the Thai bond market revealed that capital outflow from Thailand to dollar-denominated assets took off after the conflict broke out on February 24th last. Despite this, the economy continues to grow although top Bank of Thailand economic expert, Chayawadee Chai-Anant, said on Thursday that weaknesses are beginning to appear in both personal consumption and private investment. There is also speculation that Thailand’s sovereign rating may be downgraded although the government’s finances remain relatively stable while foreign reserves rose in February.

Senior Vice President at Siam Commercial Bank, Yanyong Thaicharoen, this week, revealed that the bank’s Economic Intelligence Centre predicts inflation in Thailand to reach 6.3% this year if the war in Ukraine is prolonged, driven by heightened crude oil prices. The bank predicts the economy to grow by 2.7% although economic uncertainty is growing. Downside risks are also manifesting with a dip in consumer expenditure and private investment in February as well as a flight of capital from the kingdom’s bond market.

Sirinart Amornthum of the Thai Bond Market Association (TBMA), on Friday, confirmed that figures show, since the war in Ukraine broke out on the 24th of February last, after the Russian invasion, that financial outflows from the market to Monday, March 28th last, had risen to ฿124 billion.

The capital outflow from Thailand, which industry bodies say is not as severe as that seen from China, has also seen pressure on 10-year Thai government bonds which, also on Monday last, reached a peak of 2.53% before falling back by the end of the week to 2.27%.

Public borrowing has risen by 40% since the pandemic crisis and will hit 62% of GDP this year

This was a far cry from the 0.827% seen before the COVID-19 crisis emerged to batter an already sluggish economy and drive government intervention from early March 2020 which has seen public borrowing rise by 40%.

Most analysts believe that rising bond yields can and should be seen as a sign of a recovering economy.

This is confirmed by the latest figures and an in-depth presentation was given by Ms Chayawadee Chai-Anant, a senior director of the Bank of Thailand, on Thursday.

Speculation that Thailand could be downgraded due to continued uncertainty, vulnerability and higher public borrowing planned to support the economy in 2022

There is also now rising speculation that Thailand’s sovereign rating could be facing a possible downgrade due to the continued weakness of the economy and significantly, its vulnerability to high oil prices, rising global instability and raised production costs.

In April 2020, at the onset of the COVID-19 crisis, S&P Ratings, which downgraded four Thai banks last week, then downgraded its outlook for Thailand to stable from positive due to the impact of the emerging pandemic.

The firm, however, affirmed the country’s BBB+ long-term and A-2 short-term foreign currency sovereign credit ratings.

This was upheld in October 2021 although the agency noted the stress facing the kingdom due to the ongoing economic effects of the pandemic.

Last year also saw Moody’s retain its Baa1 stable outlook for the kingdom while in December, Fitch Ratings, which operates in Thailand, retained the country’s BBB+ sovereign rating.

Key plus is that over 98% of government debt is denominated in baht with strong foreign reserves

Fitch Ratings, in its assessment of the Thai government’s borrowing, noted that over 98% of the debt was held by borrowers in the local currency compared to a medium of 66.6% for other BBB+ countries. 

Moody’s – debt is 98.5% denominated in Thai baht as two views of the economy are at odds

It also noted that the average maturity period was 9 years.

Another key strength for Thailand is its high level, relatively speaking, of foreign reserves which peaked in December 2020 at over $246 billion from $224 billion in 2019.

Despite a fall off, the figure for February 2022 rose to $245.05 billion from $242.77 billion in January of 2022.

Capital flight out of Thailand since the Ukraine war

It should be noted that this may not reflect the current situation with a confirmed capital flight out of Asia and Thailand driven by the economic consequences of the Ukraine War, the beginning of rate rises in the United States and the contrasting dovish policy confirmed by the Bank of Thailand, at its key monetary policy meeting this week, when it maintained its historically low lending interest rate at 0.5%.

Banks downgraded as the Thai economy faces a liquidity crisis caused by war and tourism barriers

Also significantly, Fitch Ratings, in December 2021, projected government borrowing of only 55.3% at the end of 2022.

At the end of 2021, government borrowing was 59.6% of GDP or ฿9.64 trillion, a significant rise of 40% since 2019 when it stood at 41% of GDP or ฿6.9 trillion although this movement is well below the rise in borrowing seen in western countries and can be seen as conservative or prudent given the scale of the emergency.

Public borrowing to rise to 62% of GDP but will revert below this figure if 4% growth can be seen in 2022

In February, the Minister of Finance, Arkhom Termpittayapaisith, pointed out that public debt will rise to 62% of GDP in the course of 2022 but said this will fall in 2023 if a growth rate of 4% is achieved.

At this point, this projection looks unlikely and everything is very much linked to the trajectory of the Russian Ukraine war.

Thailand’s recovery is proceeding although not at the pace desired and buffeted by the Ukraine war and its far-reaching, unforeseen and increasingly unpredictable economic consequences which are reverberating in every corner of the world’s still very much interconnected economy.

Over ฿100 billion in Thai denominated bonds were sold off by foreign investors in March due to the war

On Friday, it was revealed that during March alone, over ฿100 billion in Thai denominated bonds had been sold off by foreign investors in the flight of capital back to the west and particularly to dollar denominations due to the raging world crisis and rising US interest rates.

Yuanata Securities, a research house in Bangkok, is predicting the Thai government will need to raise funding in the course of 2022 to support the pace of economic recovery and that this will extend to ฿1.5 trillion.

This is expected to put pressure on bond yields which will have a knock-on effect on funding costs for larger firms and institutions within the Thai economy.

However, like other analysts, the firm sees this trend as a signal of economic recovery and bullish demand for capital.

Clear signs that the economy was in recovery mode in January says Bank of Thailand director with rising tourist arrivals even under a controlled system

The briefing, on Thursday, by Ms Chayawadee Chai-Anant of the central bank painted the same picture.

Ms Chayawadee highlighted that February saw 152,954 arrivals into Thailand from 133,903 in January following the resumption of the Test and Go scheme which the industry is now urgently calling on the government to scrap altogether as it is increasingly clear that any managed or controlled entry system impedes tourist arrivals which Thailand is increasingly losing to other popular world holiday destinations which have fully returned to normal

Business leaders are demanding unrestricted and simple access to the kingdom as existed before March 2020 with strong indications that this will happen either in June or July this year, in time for a strong second-half recovery.

Minister says Thailand Pass could be gone by June 1st, but suggests the retention of a test on arrival

Ms Chayawadee highlighted that a residual threat from the COVID-19 pandemic still lurks with Thailand continuing to see large levels of infection.

Signs of weakness and uncertainty detected with a  recent drop in private consumption and investment

The senior bank figure said that the economic data does point to a recovering economy in the first quarter but that there are signs of weakness and uncertainty ahead.

Her appraisal was similar to cautious comments made by Ronnarong Phoolpipat of the Trade Policy and Strategy Office at the Ministry of Commerce in mid-March who also warned that heightened crude oil costs may dent Thailand’s twin recovery engines of exports and tourism by driving up costs and reducing export demand.

WTI crude oil ended the week at approximately $100 a barrel, down from a peak of $130 in the aftermath of the war and biting sanctions imposed on Russia.

Ms Chayawadee, a senior director and economics expert with the Bank of Thailand whose comments regarding the economy since 2020 have been prescient, also highlighted weaker levels of private consumption in February, off by 0.6% and a drop in private investment of 0.9%, as indications that nothing can be taken for granted and that uncertainty prevails at this point.

She did however venture to say that the recovery, seen in the first quarter of 2022, will continue into the second quarter.

Government support or stimulus an important factor

She emphasised the importance of government fiscal stimulus to protect the purchasing power of the public as a critical factor, at this stage, to prop up confidence.

‘Looking ahead, the Thai economy picked up gradually in March and the first quarter this year, continuing from the fourth quarter last year,’ said Ms Chayawadee. ‘But there are downside risks because of several uncertainties including the Omicron outbreak, the Russia-Ukraine war and energy price concerns.’

Thailand’s economy this year looks like it will be very much driven by events in Ukraine as the country struggles to push forward with its economic recovery driven by exports and foreign tourism.

War in Ukraine is the most decisive factor in the country’s economic outlook moving further into 2022, prolonged conflict will see inflation at 6.3%

On Wednesday, a senior Vice President of Siam Commercial Bank in Bangkok, Yanyong Thaicharoen, gave a very interesting assessment of the situation based on the findings of the bank’s Economic Intelligence Centre Research unit.

It predicted that Thailand is currently on track for the highest headline inflation rate seen in 14 years at 4.9% but that this will rise to 6.3% if the war in Ukraine is prolonged.

Despite peace talks held in Turkey this week, the deadly war rages on while the economic fallout from the conflict including draconian sanctions between western countries and Russia, now on both sides, continues to wreak havoc on the world economy with the stakes involved going well beyond normal economic calibrations.

The International Monetary Fund (IMF) has already warned that this conflict will slow growth across the world and raise prices on all fronts.

Growth projection this year downgraded to 2.7%

On Wednesday, Mr Yanyong revealed that the Siam Commercial Bank, Thailand’s oldest bank and third-largest by asset size, which was downgraded by Standard and Poor’s S&P Global Rating this week, along with Kasikornbank Pcl, from BBB+ status to BBB status, has itself downgraded its growth projections for Thailand’s economy this year from 3.2% to 2.7%. 

The bank boss presaged the assessment on Thursday by Ms Chayawadee that the economic recovery will proceed although with rising headwinds.

The forward momentum will be driven primarily by both exports and growing foreign tourism income supported by increased government expenditure.

Mr Yanyong observed that there had been a shift in workers from the non-agricultural, urban economy back to the land during the downturn and this has accentuated difficulties for smaller entrepreneurs seeking staff.

At the same time, the kingdom’s labour market is weak with many employed workers still on lower hours with reduced earnings.

Exports to rise but primarily based on price inflation with 5.7 million tourists expected in 2022

He predicted that exports would rise by 6.1% this year but that much of this would be driven by higher costs as a result of inflation and not a clear gain for the economy.

The bank boss predicted that Thailand will see 5.7 million foreign tourists entering the kingdom in 2022 or 14.3% of what was seen in 2019 but, nevertheless, a substantial improvement on 2021 which saw 99% of the industry wiped out.

He also suggested that with this recovery in foreign tourism, balanced towards the latter part of the year, the value of the baht will recover somewhat although he still maintained it would hover between ฿32.50 and ฿33.50, the range it now sits in with a closing value on Friday of ฿33.47.

‘Domestic spending will recover at a slower pace than previously estimated. In particular, consumption is likely to be affected by lower household purchasing power following rising energy and food prices. The recovery of labour wages which are expected to increase slowly, will not keep up with the cost of living,’ said the banking executive.

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