Summary of Thailand's Economy, Strong Currency, and Inflation in 2019: "Countries with good economic conditions and growth trends tend to have a strong currency."

           This is a fundamental economic concept, but this statement may not apply to Thailand at present. Current forecasts suggest that Thailand's economy will grow by less than 3% in 2019, with the IMF predicting a growth rate of 2.9%. The Ministry of Finance has recently estimated that the economy will grow by only 2.8%. If this is the case, it will be the lowest growth rate in five years. Many are aware that Thailand has an open economy, with a focus on exports as a driver of economic growth.

           In 2018, Thailand's export value was approximately 7.6 trillion baht, accounting for about 50% of the GDP valued at 15.2 trillion baht. The trade war between China and the United States has impacted Thailand's exports, as the markets for Thai exports to the U.S. and China account for over 23%, or nearly 1.9 trillion baht.

           The effects of the trade war have slowed economic growth, with China experiencing its lowest growth in 30 years. As China is Thailand's largest export market, the issues in this market have also affected Thailand, leading to problems in Thai exports, which are a crucial economic engine.

           Another important engine is “domestic consumption”, which is the second largest contributor after exports. Many hope it will help stimulate economic growth, but this engine may also face challenges. Currently, household debt in Thailand stands at about 78% of GDP.

           This means that total household debt is around 12 trillion baht. If we consider an average interest rate of 8%, households must pay nearly 1 trillion baht in interest, or about 7% of GDP. This debt burden reduces purchasing power in the Thai economy.

           Meanwhile, the total NPL (non-performing loans) stands at approximately 450 billion baht, up from 337 billion baht in 2015. Particularly, bad debts related to consumer loans are increasing again. In summary, both exports and consumption, which we hoped would stimulate the economy, are facing significant challenges. Normally, a slowing economy leads to a depreciation of the country's currency.

           However, the Thai baht is appreciating contrary to the economic situation. Since the beginning of the year, the baht has strengthened by over 7% and is currently at its strongest level in over six years. The reasons for the baht's appreciation stem from several factors in 2018. Thailand's current account surplus as a percentage of GDP ranks 16th in the world, due to Thailand's trade and services surplus, with exports exceeding imports and tourism attracting significant foreign currency.

           When foreigners exchange their currencies for Thai baht, Thailand must hold more foreign currency, which is why the country's foreign reserves are as high as 6.5 trillion baht, ranking 12th in the world. The large foreign reserves give Thailand a strong financial status, contributing to the baht's appreciation. Additionally, foreign direct investment in various projects has also increased the demand for the baht.

           Regarding investment in the Thai stock market, many may wonder why, despite continuous selling by foreigners, especially last year when they sold a net of over 287 billion baht, the highest in five years, the baht still appreciates. In reality, some of the foreign investors' money has not left but has been reinvested in the continuously growing bond market.

           In 2018, foreign investors held bonds in Thailand worth over 1 trillion baht, nearly doubling from 2015 when it was about 570 billion baht.

           Another issue is inflation. Inflation refers to the depreciation of a country's currency. In countries with high inflation, no one wants to hold that currency, leading to a depreciation of the currency. Conversely, in countries with low inflation, the currency depreciates only slightly, making people want to hold that currency, which ultimately strengthens it. For Thailand, from 2013 to 2018, the average annual inflation rate was only 0.9%. This has led foreign countries to want to hold the Thai baht, resulting in its continuous appreciation.

           Current events must be closely monitored, as the global economy is clearly slowing down. This has led governments in various countries to adopt different economic stimulus measures. Some countries have reduced interest rates to near zero, while others have implemented cash distribution policies to the public. Some of these measures may yield short-term results, but others could distort the economic landscape compared to the past.

           In conclusion, an interesting case study for stimulating the economy is a country with low inflation but a depreciating currency, which contradicts the traditional belief that low inflation leads to a strong currency. This country is Japan, which has experienced low inflation for several years. The Japanese yen has appreciated against other currencies until the Bank of Japan chose to implement special policies by injecting a large amount of money into the system, hoping to bring inflation back to 2%. This includes maintaining the policy interest rate at 0% since 2011 and recently setting a negative interest rate of -0.1%. What has happened is that Japan's real interest rates are negative, leading to less desire to hold yen, resulting in the depreciation of the yen against other currencies. This is why Thai people have been able to travel to Japan at lower costs recently.

References

- http://www.thaiwebsites.com/imports-exports.asp
- https://www.bangkokpost.com/business/1767534/imf-sees-thai-growth-rate-at-2-9-this-year-3-0-in-2020
- https://kasikornresearch.com/en/analysis/k-econ/economy/Pages/y3823.aspx
- https://www.ceicdata.com/en/indicator/thailand/household-debt--of-nominal-gdp
- https://en.wikipedia.org/wiki/Economy_of_Thailand
- http://www.worldstopexports.com/thailands-top-10-exports/
- https://www.bot.or.th/App/BTWS_STAT/statistics/ReportPage.aspx?reportID=794&language=eng
-https://en.wikipedia.org/wiki/List_of_countries_by_foreign-exchange_reserves_(excluding_gold)
- https://www.inflation.eu/inflation-rates/japan/historic-inflation/cpi-inflation-japan.aspx
- https://tradingeconomics.com/japan/interest-rate?continent=asia


Compiled by TERRABKK Research