Strong currency adding to economic woes

Strong baht may hurt exports just as signs of recovery appearing. Rise of Vietnam & Philippines makes competitiveness a needed focus.

ECONOMY

Strong currency adding to economic woes

26/10/2016
Bloomberg News agency

There has been a recent 1.8% appreciation in the baht during the past 12 days.

Overall, the baht has strengthened 3.3% this year.

Baht appreciation means the baht is becoming more valuable compared to other currencies which makes goods and services in Thailand more expensive, less attractive and less competiive than those from other countries.

STRONGER BAHT MAY REDUCE EXPORTS

A resurgent currency that may hurt Thai exports just as the industry is showing some signs of recovery.

The export industry was in decline even before the currency gains.

Exports fell in all but six of the 24 months through August, customs data show, and probably declined again in September.

Political upheaval, the rise of manufacturing rivals such as Vietnam and weak global demand put the brakes on a sector ofthe economy that makes up about 70% of gross domestic product (GDP).

The $395-billion economy, Southeast Asia’s second largest, exports everything from electronics and cars to rice and rubber.

The global economy remains sluggish which has had a negative effect on export dependent economies.

Thailand also needs to think about becoming more competitive given the rise of the manufacturing sector in the likes of the Philippines and Vietnam.

Goods exports probably slid 1.3% in September from a year earlier, according to a Bloomberg News survey ahead of a report due Wednesday.

Goods exports unexpectedly climbed 6.5% in August following a surge in vehicle shipments.

ECONOMY DURING MOURNING PERIOD

The government declared a year of mourning for King Bhumibol. Prime Minister Gen Prayut Chan-o-cha has said elections could happen again from late 2017.

The year-long mourning period may reduce spending and domestic consumption somewhat.

Officials at the central bank, Bank of Thailand (BOT), have said that some industries relying on domestic consumption may be affected during the mourning period, but that overall, the economy’s fundamentals remain sound.

NO RATE CUT EXPECTED

The central bank has kept its benchmark interest rate unchanged since lowering it to 1.5% in April 2015.

There has been no rate cute even with inflation close to zero and calls from the International Monetary Fund (IMF) for looser policy to spur expansion.

Economists do not expect a rate cut, despite calls for the Bank of Thailand to slow the pace of baht appreciation.

Central bank governor Veerathai Santiprabhob said last week the economy is recovering, cushioned by a robust financial system, low unemployment and a healthy fiscal position.

LONG-TERM TREDS IN ECONOMY'S GROWTH

Annual gross domestic product (GDP) growth is running at just over 3%.

That compares with a yearly average of 7.5% in a decade-long boom to 1996, according to the World Bank.

A push to make innovation and technological creativity bigger engines of expansion, called Thailand 4.0, remains a work in progress.

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