Thailand Review May 2010

This article is contributed by Sumitomo Mitsui Banking Corporation, Bangkok Branch. The article will be periodically updated. PDF file is available with details and statistical data.

1. Economic trends

1. On April 29th, 2010, Bank of Thailand announced an economic growth (GDP growth rate) forecast of between 4.3% and 5.8%. Given that private sector investment and exports have made particular improvements and that a sustained economic recovery is expected, and with the low base effect resulting from 2009's minus 2.3% economic growth, a high growth rate is expected for this year.
2. Bank of Thailand's monthly financial and economic report (issued April 30th, for March) gives the export worth for March as US$16.1 billion (up 41.0%, compared to the same period in the previous year), and import worth US$15 billion (up 62.0%, similarly). Agricultural products, high-tech and a wide range of other industries have benefited from expanding domestic and foreign demand, with both exports and imports trending towards recovery. The balance of trade was a US$1.1 billion surplus, with a US$1.7 billion surplus for the current account. The foreign currency reserve at the end of March was US$144.1 billion (up US$2.3 billion on the previous month).
3. According to a statement by the Thai Ministry of Commerce on May 3rd, April's consumer price index increase rate was up 3.0%, compared to the same month in the previous year (food and beverages up 3.7%, nonfood products up 2.5%), marking seven consecutive months of positive growth. The core CPI for April (excluding perishables and energy) was 0.5% up on the same month in the previous year, six consecutive months of positive growth.

2. Investment trends

1. The Thai Board of Investment (BOI) reported 184 investment applications by foreign capitalized firms (foreign capitalization 10% or more) in the period January to March, 2010 (up 30.5%, compared to the same period in the previous year), with an investment worth of Bht44.4 billion (2.4 times the value for the same period in the previous year). Small scale investment applications worth under Bht100 million accounted for 65.8% of the total. In terms of numbers of applications by sector, metal goods, machinery and transportation equipment was top with 44 applications (worth Bht14.4 billion), followed by services and public utilities with 42 applications (worth Bht10.3 billion), electrical equipment and electronics goods 38 (Bht7.1 billion), chemicals, paper and plastics 23 (Bht4.3 billion), agriculture and processed agricultural goods 19 (Bht4.1billion), ore, metals and ceramics 5 (Bht2.2 billion) and light industry 13 (Bht1.9 billion). In terms of numbers of applications by investing nations, Japan was top with 66 applications (up 17.9%, compared to the same month in the previous year), with a total investment worth: Bht21.6 billion (2.5 times the value for the same period in the previous year), followed by China 8 (Bht6.4 billion), Singapore 21 (Bht6.1 billion), Hong Kong 7 (Bht2.3 billion), Germany 2 (Bht1.4 billion), Australia 4 (Bht1.4 billion), and Denmark 4 (Bht1.3 billion).

3. Financial trends

1. According to a statement by Central Bank, the financial institutions’ deposits as of end March, 2010, were worth Bht9.9851 trillion (up 5.1%, compared to the same month in the previous year). Loans were worth Bht8.9655 trillion (up 6.0% compared to the same month in the previous year). As a result of the relaxed money policies adopted since September, 2008, the deposit surplus has become quite pronounced, but as private sector business conditions have improved recently, the demand for operating capital is growing.

4. Interest rate trends

1. (April review) As a result of concerns over the potential impact of protracted anti-government demonstrations on economic performance, expectations that the baht interest rate would go up receded, and April's interest rate began to trend downwards. Although neighbors Singapore (14th) and India (20th) implemented monetary restraint policies, Thailand's MPC (Monetary Policy Committee) on 21st voted to keep the policy interest rate unchanged, as per market expectations. The accompanying statement spoke of robust economic growth and expectations that core inflation would rise, and gave the impression that Bank of Thailand would be prepared to raise the policy interest rate going forward, providing that there was no risk from political instability. However, the political situation in Thailand remains unstable, with fears that protracted turmoil will adversely impact the real economy. Further, given that core inflation has settled considerably, the growing view is that it will take some time before monetary restraint is implemented.
2. (Outlook for May) All eyes are on the antigovernment demonstrations. The effect of these demonstrations on the real economy is unavoidable. Also, given the fact that core inflation is quite settled, expectations of an interest rate hike have receded.However, should the anti-government demonstrations show signs of coming to an end, this will clear away one barrier to an interest rate increase, and it is possible that there will be a greater expectation of higher interest rates in the market.

5. Exchange rate trends

1. (April review) The dollar - baht exchange rate for April started off the month in the vicinity of US$1 to Bht32.35. Despite the ongoing anti-government demonstrations in Bangkok's commercial and other districts, the Thai stock market performed solidly, reaching a new high for the year (820.09), and speculation of imminent changes to China's financial policy (that the renminbi would be revalued upwards), etc., caused a baht purchasing mood to prevail. However, after a state of emergency was declared in Bangkok on 7th, and 25 people were killed in a government crackdown on protesters on 10th, the stock market plunged and the baht began to depreciate again. However, when the baht weakened there was evidence of much dollar selling - baht purchasing among domestic exporters, pushing the baht upwards again, passing 32.20 to reach a new record high for the year. Subsequently, bomb attacks on Silom Road on 22nd and renewed clashes between demonstrators and security forces on 28th caused political unrest to spread once more and the baht responded by weakening further, closing the month in the neighborhood of 32.35. The yen - baht exchange rate started the month at 1 yen to mid 0.34 baht. News of solid employment statistics from the US and Greece's financial problems encouraged overall dollar purchasing and pushed up the dollar - yen rate, and the yen - baht rate closed the month at low 0.34, slightly yen low - baht high.
2. (Outlook for May) Although the financial problems in Greece have sparked risk avoidance activity, and the political tension in that country continues, the baht's depreciation will be within a limited range. Trade statistics show that the balance of trade surplus is growing and real demand's dollar selling - baht purchasing will likely mean that any upward movement in the dollar - baht rate will continue to be sluggish.

6. Political trends

1. Protests by the pro-Thaksin United Front of Democracy Against Dictatorship (UDD), calling for the immediate dissolution of the government and a new general election, became more violent, prompting the government to declare a state of emergency on April 7th. Tensions between the demonstrators and security forces erupted into violence on 10th in central Bangkok, near to the palace grounds, leaving 25 people dead, including one Japanese cameraman, and over 800 hurt.
2. On April 22nd, grenades were launched at anti-UDD rallies along Silom Road in central Bangkok, killing one person. Business was affected, with several Japanese firms that have offices in the area forced to close temporarily.
3. On May 3rd, in a compromise deal that was aimed at ending the standoff with UDD supporters, Prime Minister Abhisit announced his intention to call a Lower House general election for November 14th. Although the UDD appeared to accept these conditions, the gulf between the two sides remains as wide as ever and it is expected that there will be many twists and turns before there is an end to the demonstrators' occupation of city streets.