The Baht Thread

[nigelforbes]

3 minutes ago, ballpoint said:

GDP per PPP gives the "Gross domestic product (GDP) in purchasing power standards", which creates a level playing field between countries in terms of how much money they generate and the price of what they buy for it.  For example, a country with a medium level GDP, but where prices are low may have an equal, or even higher GDP per PPP than a high GDP country where prices are expensive.  The next step is GDP per capita PPP, which further divides it by the population to show the true purchasing power GDP of each citizen.

 

 

The effects of the 1997 "Asian crisis", the 2008 GFC and covid are clearly seen.

 

 

Despite what many doomsayers were telling us about the Thai economy, Thailand was showing rather rapid growth up till covid hit, but looks to be improving again, with the forecasted data in the blue shaded region:

Thailand GDP per capita PPP - 2022 Data - 2023 Forecast - 1990-2021 Historical - Chart (tradingeconomics.com)

 

And an explanation of the PPP calculation is shown here:

PPP Calculation and Estimation (worldbank.org)

Many thanks for posting that, I never knew that and have learned something. The second graph down is striking, it makes the effects crystal clear.. 

[ballpoint]

Further to my post above, a comparison of global GDP per capita PPP.  Thailand ranks right in the middle, above Brazil, South Africa, India and Indonesia, amongst others.  Obviously, relatively wealthy, low population countries, do well here.

A few others of interest: The UK is around 50,000, Germany 58,000, Australia 56,000, New Zealand 46,000 and China 19,000 - which, when considering its enormous population, is really rather good...

 

GDP per capita, PPP (current international $) | Data (worldbank.org)

 

 

 

[nigelforbes]

We recently looked into Goods Export, we also said that Services Export includes International Tourism. Services Imports includes the money spent in Thailand on money spent overseas, things such as international travel and tourism, overseas school fees and family support and on consultancy in Thailand by overseas companies. I’ll try and search out some data on this. That leaves Good Import that we haven’t mentioned in any detail.

 

“Among Thailand’s biggest imported products by dollar value are crude oil, integrated circuits and micro-assemblies, flat-rolled iron or steel products, and computers. From a continental perspective, 75.4% of Thailand’s total imports by value in 2021 were purchased from fellow Asian countries. European trade partners supplied 10.6% of imports into Thailand while (only) 8% worth originated from North America (it’s worth remembering this in the context of currency manipulation). Oceania (mainly Australia and New Zealand) accounted for 2.2% of the total. Smaller percentages came from Africa (2%) and Latin America (1.8%) excluding Mexico but including the Caribbean”.

 

https://www.worldstopexports.com/thailands-top-10-imports/

 

- Electrical machinery, equipment: US$52.9 billion (19.7% of total imports)

- Mineral fuels including oil: $41 billion (15.3%)

- Machinery including computers: $30 billion (11.2%)

- Iron, steel: $15.2 billion (5.7%)

- Gems, precious metals: $12.6 billion (4.7%)

- Plastics, plastic articles: $10.8 billion (4%)

- Vehicles: $10.2 billion (3.8%)

- Articles of iron or steel: $7.3 billion (2.7%)

- Copper: $6.3 billion (2.4%)

- Optical, technical, medical apparatus: $6.3 billion (2.4%)

 

Thailand’s top 10 imports represent 71.9% of the overall value of its product purchases from other countries. Among these top categories, the fastest growth products in terms of Thai imports were iron and steel (up 63.1%), copper (up 62.9%), gems and precious metals (up 55.4%), mineral fuels including oil (42.5%) then imported plastics both as materials plus items made from plastic”.

 

It’s worth looking closer at the second one on the list that includes oil. “In 2021, Thai importers spent the most on the following 10 subcategories of mineral fuels-related items”.

 

- Crude oil: US$25.3 billion (up 43.7% from 2020)

- Petroleum gases: $5.9 billion (up 42.6%)

 

The rest of this list includes things like coal, lignite and other processed fuels and chemicals.

 

The numbers are distorted from the norm because of covid related economic factors but oil imports always were a major component of Thai imports. A separate report puts 2020 oil imports value at USD 15 bill. (which confirms the numbers above) and that Russia and Vietnam were the fastest source of supply! It seems that Thailand is ranked globally as the 11^th largest importer of oil, anywhere.

 

https://oec.world/en/profile/bilateral-product/crude-petroleum/reporter/tha

 

From a THB perspective, the increased cost of oil is a significant factor. It effects Baht value because oil is priced and sold in USD, as indeed most imported products are (although Russian oil may not have been). This means that the country must sell Baht and buy USD to pay for its energy consumption, this in turn causes the Baht to weaken, unless it is offset by corresponding exports. Whether or not Thailand continues to import oil from Russia is not known. It’s also worth remembering that Thai Oil Co is one of Thailand's largest exporters because it imports oil, refines and processes it and exports it to other Asean countries such as Singapore.

[nigelforbes]

Here's the detail on 2022 tourism from BOT:

 

https://www.bot.or.th/App/BTWS_STAT/statistics/ReportPage.aspx?reportID=875&language=eng

 

Number of foreign tourists per month,

Occupancy rates by location (North South etc),

Average cost of room by location, by month,

Number of foreign tourists as a percentage of total tourists.

 

I'll look for something meaningful by nationality.

[nigelforbes]

I said I'd find some International Tourism data on nationalities, here it is. We're still all very much about the Baht in this thread, but it's important to understand the sources of International tourism, if we're going to try and understand how it will hold up this year, in what may be a recessionary year for many Western economies. It is clear that in 2019, the last full year of pre-covid tourist data, about 75% of Thailand's international tourism derived from East Asia and ASEAN countries. 

 

Only 16% came from Europe and 4% from the US. This means fewer long haul flights and increased fuel surcharges are unlikely to be a major constraint to tourist arrivals in 2023. A similar picture exists in 2022 when the numbers were subdued, over 75% of tourists arrived from the region. Plus China was still closed during 2022 and there was a low number of Chinese tourist arrivals compared to 10 mill. (25% of all tourists) in 2019.

 

https://www.thaiwebsites.com/tourists-nationalities-Thailand.asp

 

[nigelforbes]

The last aspect associated  with Baht strength that I want to cover is the forecast for GDP growth globally and the impact that may have on Thailand and trade this year. The IMF produced a global growth forecast which somebody else has conveniently mapped so I'm going to borrow it and same myself some effort! Even though we're only in February and the map that follows is only a forecast, the estimates for growth have remained consistent for some time. The direct effects of recession in 2023 are found in the West, Asian countries and the East are forecast to perform correspondingly better. Since Thailand's major export markets and sources of International Tourism are all in East Asia and ASEAN, it can be guessed that Thailand should fare much better than many Western countries, particularly Europe.

 

https://www.visualcapitalist.com/mapped-gdp-growth-forecasts-by-country-in-2023/

 

 

 

 

 

[nigelforbes]

Maybe a dashboard will help some better understand what the bigger picture looks like:

 

 

https://tradingeconomics.com/thailand/exports

https://tradingeconomics.com/thailand/gdp-growth-annual

https://tradingeconomics.com/thailand/foreign-direct-investment

https://tradingeconomics.com/thailand/current-account

https://tradingeconomics.com/thailand/tourist-arrivals

https://www.marketwatch.com/investing/index/dxy

 

[nigelforbes]

This is kind of a blog entry that I've written from some of the nonsense I've been reading elsewhere in the forum on the subject of the Baht, tourism and the Thai economy. We’re back to speculation again, only one step up from manipulation!

 

The Chair of the Fed can talk up USD, when he speaks, USD moves. The Chancellor in the UK can do the same with the Pound, as can Lagarde with the EUR. In theory, BOT could do similar, if it were to announce an extreme measure aimed at the BAHT. You have to ask however, why would they! The Central Bank can only execute government policy, they can’t go off at some bizarre tangent, just because it might be fun! As for TAT, well, they can produce whatever forecasts they want and financial world will say, ho-hum, dealers in Thailand will just sigh, again.

 

The media on the other hand can produce all manner of headlines and articles about the Baht and the economy and immediately get certain classes of readers into a frenzy, hahahaha, that’s their job, it’s sad that some don’t get that! If your BP goes South as a result, TBH that’s what you get for reading the Daily Star instead of the FT or Bloomberg.

 

It helps to have an anchor in fact and reality, in things that you can see and prove rather than in hidden unprovable mystery that just seems interesting and novel. Doctors are taught to believe that if the problem has a simple answer, that’s what it is, don’t go looking for the 1% maybe answers. The simple and very clear answer about the Baht is that it:

 

- Cannot be exported in any volume so it’s value is only controlled within Thailand.

- The Thai economy is 70% export dependent and export bills are settled in USD,       the link between USD and the Baht is vital.

- The Baht is tiny, USD is huge.

- USD is volatile, it was one of the top five most volatile currencies in 2022.

- When USD moves (which it does a  lot), the USD/GBP exchange rate has no choice but to follow.

- Goods Exports alone don’t drive the value of the Baht, some other numbers to look for include:

 

- Exports over USD 22 bill month

- International Tourist arrivals over 20 mill year

- Inbound FDI over USD 12 bill.

- US Dollar Index 100, +/- 5%

- Current account balance, GDP +/- 5%

 

As a general rule, if the numbers come in less than this, the Baht will weaken, if higher it will strengthen. The optimal range for USD/THB is around 31/34, ideally 32/33. BUT, In a 2018 paper, the BOT Monetary Policy Committee wrote:

 

 “Overall exports value appears to have no correlations with exchange rate movements.”

 

A weak Baht does however have a negative effect on the Thai economy because imports, particularly oil, become more expensive. Those costs negatively affect the Thai economy as a whole, transportation, wages, production costs and energy, all cost more.

 

“The impact of exchange rates on the Thai economy can be two fold. On the one hand, an

abrupt appreciation or a continued strengthening trend may weaken the country’s price competitiveness or reduce export revenue in baht terms. These, in turn, affect wages in export oriented firms and consumers’ purchasing power due to their lower income, which may eventually result in slower economic growth. Nevertheless, these channels are only one side of the coin when assessing impact of exchange rates on the Thai economy. On the other hand, exchange rate appreciation helps lower producers’ import costs of raw materials as well as delaying an increase in consumers’ costs of living, especially when global energy prices swiftly increase.”

 

https://www.bot.or.th/English/MonetaryPolicy/MonetPolicyComittee/MPR/BOX_MRP/BOX_MPR_June2018_2.pdf

 

Forget the press reports, forget the speeches forget the manipulation theories, pay attention to the numbers.

 

 

 

 

[CharlieH]

Reported post and response removed.

[Isaan sailor]

What about Emerging Market currency trading accounts?  Many pension and in the US 401k and IRA accounts offer these automatic investment options to employees..  Could they cumulatively drive the Baht higher?

[nigelforbes]

1 hour ago, Isaan sailor said:

What about Emerging Market currency trading accounts?  Many pension and in the US 401k and IRA accounts offer these automatic investment options to employees..  Could they cumulatively drive the Baht higher?

No, because the trades are not for the delivery of currency. The trades may well be based on or in THB but when it comes to cashing in time and taking profit, that's taken in USD, not THB.

 

For example, I hold an Asian/Emerging Markets investment fund which invests in equities in Developed and Emerging Asia, the equities are in  half a dozen or more currencies but the fund rebases them back to GBP. That means that if the shares do well and make a profit, the price in the fund increases and it pays me in GBP, the shares and the foreign currency never actually leave the country of issue.

[nigelforbes]

A post in another thread made me think back to the earlier part of this century when expats in Thailand used to have debates about the value of the Baht and the falling exchange rate against the Pound.

 

By 2006, expats had grown used to 75 baht per Pound or higher, they'd had 19 years above that level. As the Baht began to strengthen and the Pound began to weaken, grumblings could be heard that the Baht was getting above it's station but that it couldn't last. By 2012, 50 was the norm and the grumblings were deafeningly unanimous, "the Baht is going to crash bring back 75", they all said as one. By 2016 it had reached 45 and the prospect of sub 40 was very real, I believed less than 5 years away, it actually got there in 3 years. I famously said at that time, "you''ll never see 45 again". I was wrong, we saw 46 during covid.

 

The question is, why did so many expats feel so strongly that Baht strength wouldn't last and wasn't deserved? The answer is, for the same reasons that many think the same thing today: dual pricing, rip offs, corruption, pollution, uneven sidewalks and low hanging electric lines and bizarrely, high costs for some. What I got out of those discussions is that the people who complain the most are the ones who are being squeezed the most and probably the ones who have been here the longest. The other take away was that less than 10% of expats understood how the Baht exchange rate was constructed and the importance of USD to the Thai economy and the Baht. If in 2006 or 2012 you'd tried to suggest that the real problem with Baht strength or weakness was USD, you'd be ridiculed as a fantasist, fortunately today there is better awareness but sadly not as much as is needed.

 

The other problem was boiling frog syndrome, most expats couldn't see the  economic progress that the country was making because they were right in the middle of it, the country was changing daily but few expats realised that because nobody paid attention to the numbers or put them in perspective. In a separate post today I wrote:

 

"In 1997, at the time of the crash, there were 5 mill. tourists per year, in 2019 there was 40 mill. In 1997, GDP was USD 113 bill., in 2019 it was USD 540 bill. In 1997, over 40% of the population was below the poverty level, today it's about 7%.  In 1997, exports were USD 5 bill. month, during a couple of months last year they reached USD 26 bill. I was here from 1995 and there's no contrast between then and now".

 

There's a lot of similarities between the events I've described above.....and today!

 

https://www.poundsterlinglive.com/bank-of-england-spot/historical-spot-exchange-rates/gbp/GBP-to-THB

[nigelforbes]

Correction/typo:

 

the above post should read, 9 years above that level, not 19 years, sorry!

[nigelforbes]

@Isaan sailor If you're looking into ways that change the value of the Baht, you might want to research BOT and Forward Contracts. BOT uses forward contracts to  hedge their USD obligations when they don't have enough USD on hand and/or at times when USD is too strong or the Baht is too weak (as in 2022). A forward contract lets BOT agree to buy a specific amount of foreign currency, on a specific date, at a specific exchange rate and they pay a fee for this. If they don't make the exchange on the agreed date, they can agree to extend the period (for a fee) or walk away from the contract and lose their fee, failing that they fullfill the contract.

 

The amount involved are in the billions of USD which requires BOT to sell THB to buy the agreed currency. All of this is done through partner banks and private lenders but ultimately the effects of it are felt in the exchange rate.

 

 

[nigelforbes]

In a 2018 study, BOT said  “Overall exports value appears to have no correlations with exchange rate movements.” In other words, it doesn't matter how high or low the exchange rate is, overall export values are not affected. Another poster  challenged this but offered no proof that this wasn't true so I decided to dig into the subject.

 

The first point to appreciate is that there is a huge difference between value and volume. A volume of 10 boxes with a value of $20 each is not the same as a volume of 20 boxes  with a value of $10 each! Overall value is important to GDP and the Baht, overall volume is important to jobs.

 

What I found is that there CAN or MAY be an impact on the value of exports, depending on which country is being exported to and how they eventually pay. I cannot find evidence that there is a strong correlation between OVERALL VALUE or volume, based on exchange rate movements.

 

The value of trade with the US for example does appear to correlates with the strength or weakness of USD/THB, when the dollar is weak (or the Baht is strong), the Thai trade balance with the US is in surplus, when USD is strong (or the Baht is weak), the trade balance is in deficit. I suspect this is only because the US pays the final bill in USD. The same problem doesn't exist with the other countries Thailand exports to, unless their currency is pegged to USD. In most cases it seems those other currencies move in a similar fashion to THB, in relationship to the Dollar. (Note: it doesn't matter that trade bills are settled in USD, that's just an interim currency, used to settle  trade bills, it's the end currency that counts when we're talking about exports value/volume. And anyway, this is about export volumes and value, not Baht strength or weakness). 

 

See below, the balance of trade between Thailand and the US since 1990, the trade deficit/surplus between the two countries  (only) correlates mostly to Dollar strength weakness and the state of the US economy.

 

 

 

 

 

 

[nigelforbes]

29 January, 2023

 

"Sony has transitioned the manufacturing of cameras that are destined to be sold in Japan, the United States, and Europe out of China and to a factory in Thailand, which amounts to about 90% of its total production".

 

"Last year, Sony sold about 2.11 million cameras around the world. Nikkei says that of that, 150,000 were destined for sale in China while the remainder went elsewhere. At this point, most of that production — more than 90% — has been moved to Thailand".

 

https://petapixel.com/2023/01/30/sony-has-moved-90-of-its-camera-production-from-china-to-thailand/

 

https://finance.yahoo.com/news/global-firms-eyeing-asian-alternatives-203144776.html

[nigelforbes]

NESDC (National Economic and Social Development Council) is the Thai equivalent of the Economics Budget Reporting Office. Their report on the 2022 economy was recently released and is linked below, open the link below and click  on "Thai Economic Performance in Q4 and Outlook for 2023" .

 

The chart on page 2 shows the growth in export values to key economies for the past four years and by quarter for 2022. Interesting to note that exports to regional economies dominate to a high degree and the influence of Western economies is small by comparison. Also interesting to note is the extent to which Private Consumption is aiding the economy, mostly as a result of improved tourism.

 

https://www.nesdc.go.th/nesdb_en/ewt_news.php?nid=4491&filename=Macroeconomic_Planning

[nigelforbes]

According to an article in the post dated 17 February, some market analysts think the Baht is going to depreciate further below 34.20 and this is helping the price of exporting company stocks.

 

At first glance, many readers will think the article's title says that the weaker Baht will aid exports, but it doesn't! The headline reads, Baht Dip Aides Export Stocks, that means that shares in exporting companies have increased in value on the expectation the Baht will weaken and those companies will do more business. That strategy of course will only work if there are enough willing buyers!

 

Most of the information appears to be from the investment arm of a Thai bank which  sells stocks and shares, the information may or may not be accurate. What is probable is that funds will flow out of the Thai stock market and into USD on the back of the US Fed's view on inflation. That outflow may well result in further weakening of the Baht (against USD), unless it is offset by other factors such as increased tourism or FDI inflows, for example. A weaker Baht seems probable, increased export value as a result of the weaker Baht, remains very very uncertain. 

 

 

[metisdead]

As per the request of the OP, this topic is now closed.