Thailand: Baht strength holding back trade – 14 Aug 2017

  • The Thai Baht has surged against the USD to be the best-performing currency in Asia in 2017, prompting a growing outcry among exporters fearing that foreign exchange pressure will be a hurdle for them to sell products.
  • However, Thailand’s exports totalled USD113.5bn in 1H17, advancing 7.8% y/y, its highest growth rate in seven years.
  • At first glance, the Thai Baht’s 7% rally against the greenback seemed no impediment to the country’s exports, but currency and outbound trade are still highly correlated, and the rapid gain in the Thai Baht is blunting some of the competitiveness of Thailand’s exports.
  • Thailand’s export growth pace lagged behind many other trade-dependent Asian countries where outbound shipments were in the double digits.
  • During 1H17, Malaysia’s exports jumped 21% y/y, Vietnam’s chalked up 18.8% and Indonesia’s shot up 14%. These are commodity-exporting countries that saw their currencies appreciate at a slower clip than the Thai Baht. For the Philippines, its exports climbed by 16.3% during the first five months to May 17, while the peso depreciated against the dollar.
  • The slower growth for Thailand’s exports when compared with other export-oriented countries in the region shows the Thai Baht’s appreciation is taking a bite out of the country’s shipments, said Amonthep Chawla, CIMB Thai Bank’s head of research.
  • With inflation at a low ebb, the baht’s real effective exchange rate, which measures the development of the real value of a country’s currency against a basket of the country’s trading partners, has gained less than the nominal value, indicating Thai exporters’ competitiveness in terms of price was only slightly affected by the change in the exchange rate, Don Nakornthab, senior director in the macroeconomic and monetary policy department at the Bank of Thailand said.
  • However, Thailand has entered a new period where export growth will be lower than 5% from now on, which has nothing to do with the stronger Thai Baht, he added. Even though Thailand’s economy is gaining below its growth potential, capital flows still flood into the country and strengthen the Thai Baht.
  • Thailand is considered a safe haven, with an enormous current account surplus of USD23.5bn derived from robust growth in exports and tourism income for 1H17, Mr Benjarong said.

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