The Thai economy is on the verge of a recession while the baht will remain strong, a financial analyst has warned.
Kobsidthi Silpachai, head of capital markets research at Kasikornbank, said it will be interesting to see whether Thailand’s economic growth slows in the fourth quarter compared to the third.
The economy expanded 2.4 per cent year-on-year but quarter-on-quarter growth in the third quarter was just 0.1%.
Had the National Economic and Social Development Council not revised downward growth in the second quarter by 0.2 percentage point, quarter-on-quarter growth would have been negative, Kobsidthi said at a seminar hosted by Kasikornbank on Wednesday (November 27).
He said that the chance of the Thai economy entering a recession next year was now 20%, up from the 15 % forecast earlier.
“We haven’t yet experienced recession, but we’re on the verge of it if we look at quarter-on-quarter growth of 0.1 % in the third quarter. The positive result coming from the downward revision for growth in the second,” said Kobsidthi.
“It is challenging for the Thai economy in the fourth quarter as we see signs of further economic weakening,” he pointed out.
The baht’s appreciation is meanwhile expected to continue to around Bt30.5 per dollar by the end of this year. Bt29.75 in mid-2020 and Bt29.25 by the end of next year.
A relatively high current-account surplus, estimated to be $30 billion next year, would underpin the strong value of the baht, he said.
The China–United States trade war effecting economy
Continuation of the trade war between the United States and China will also help ensure the baht remains a safe haven for foreign investors.
The Kasikorn Research Centre has forecast economic growth next year of 2.7%. Down from 2.8% in its previous projection.
The US-China trade war will hurt Thai exports, which are expected to contract by 2% next year. Compared with estimated 1% fall this year.
Manufacturing and employment are unlikely to expand much next year. Thailand is also facing a labour shortage as the average age of the population rises.
Government spending and stimulus packages can shore up the economy in the short run. However they cannot bring about a higher growth rate, Kobsidthi warned.
The number of foreign tourist arrivals will increase little because of the global economy slowdown. With China’s economy sluggish too. Beijing is expected to promote domestic tourism next year. Resulting in a drop in Chinese visitors to Thailand, he noted.
Limited Monetary Space for Central Bank
The Bank of Thailand is unlikely to lower its benchmark interest rate due to limited monetary space, Kobsidthi said. “The current 1.25 per cent rate is a historic low, and a further cut would not curb the baht’s rise.”
The central bank, however, will face considerable pressure next year to do something to boost the economy, he said.
Due to high volatility in the financial markets, many investors have sold off their Thai bonds. They are also required by the central bank to hold a limited amount of baht currency.
Short-term bond holdings among foreigners has dropped to Bt50 billion from Bt107 billion – the level before the central bank imposed restrictive measures on the amount of baht that could be held, he said.
The outstanding maturity for short-term bonds held by foreigners is the lowest in 16 years, he noted.
Foreign holdings of long-term bonds have also decreased to Bt858 billion from Bt879 billion, he said.
Source: The Nation