Thailand's local currency gains raise concerns over exports

The baht was one of the best-performing currencies in South-east Asia in 2017, making significant gains against the US dollar as macroeconomic recovery continued and foreign investment surged. A strong baht is a double-edged sword for trade and investment stakeholders, however, as some predict that Thai exporters will be negatively impacted in 2018. Thailand remains at risk of being labelled a currency manipulator by the US, which could prompt a more protectionist approach that could slowdown Thai exports. Despite efforts by the Bank of Thailand (BOT) to moderate currency appreciation, the baht continued to gain in the first half of 2018, though this has not yet appeared to have significantly impacted exports.

Baht Impact

Export receipts have fluctuated in recent years, dropping from BT7.1trn ($205.5bn) to BT6.9trn ($199.7bn) in 2013, before climbing to BT7.3trn ($211.3bn) in 2014. The figure fell again in 2015 to BT7.2trn ($208.4bn) but rose to BT7.6trn ($220bn) the following year. In 2017 outbound shipments continued their upward trajectory, with the BOT reporting a 6% increase in revenue on the previous year to reach BT8trn ($231.6bn).

In 2016 exports accounted for 69% of GDP, according to World Bank data, making the economy vulnerable to strong currency appreciation. Minimum wage growth, which is estimated to have hit 3.4% in 2017, could also weigh on exports. For 2018 the Ministry of Commerce forecast export growth of 8%, although the Thai National Shippers’ Council said in February 2018 that without relief measures the rate could dip below 5.5%. However, following a strong performance in March, when exports increased by 7.1% year-on-year, the council readjusted their 2018 prediction to 8%.

In April 2018 a joint committee between the Federation of Thai Industries, the Thai Bankers’ Association, the Thai Chamber of Commerce and Board of Trade of Thailand predicted export growth for the year to be between 5 and 8%. The committee was worried about trade tensions between the US and China, as well as the potential impact of the strong baht, which was valued at $1:BT31.2 when they made their announcement, a 4.4% rise since the turn of the year.

Market Manipulation

An increasingly strong baht places Thailand at risk of being labelled a currency manipulator. The US Census Bureau reported a trade deficit of $16.7bn with Thailand at the end of October 2017, equivalent to more than 10% of Thailand’s GDP for the six quarters through September 2017 and exceeding the US-mandated 2% threshold. Thailand is also one of 16 countries highlighted by the US has having a high trade surplus.

The BOT has taken note of currency appreciation risks, and in April 2018 Veerathai Santiprabhob, governor of the BOT, told local media that Thailand does not intervene with foreign exchange rates to maintain trade competitiveness. He argued further that the baht was moving in line with market supply and demand, and that it benefitted from rising capital inflows from advanced economies (see Banking chapter).

According to Veerathai, the country’s large current account surplus can be attributed to lower global oil prices, a Chinese-led tourism boom and weak domestic investment, although rising oil prices and an uptick in domestic investment are expected to push the surplus to between 8% and 9% of GDP in 2018.

Growing Exports

In April 2018 the US Treasury reported that Thailand had not been put on its watch list, owing to its small trade volumes. However, the Treasury expects to expand the list of countries under scrutiny for currency manipulation in its next report, scheduled for October 2018.

Despite concerns, the baht’s increase in value has not yet significantly impacted export growth. In fact, exports have continued to post strong numbers in the first half of 2018; in May the Office of the National Economic and Social Development Board reported that exports increased by 6% year-on-year to hit $61.8bn.