Thai Economy vs THB

[Mike Lister]

Part of the current "economic crisis" is the performance of THB which is sliding, one major forecast is for 36+ by 1Q24. That makes imports expensive, particularly imported oil. Higher oil prices means higher transportation costs and puts  yet more pressure on the Fuel Subsidy Fund which is already seriously indebted. 

 

That cheaper Baht is unlikely to help exports which depend almost exclusively on the strength of the buyers economy rather than the weakness of the sellers. 

 

But here's one for the currency manipulation theorists: if the Baht really is manipulated, why don't "they" just manipulate it now? The other question is, how low will it go?  

 

Fair value historically is 32 to 33, that makes both imports and exports fair value.

 

 

https://tradingeconomics.com/thailand/currency#:~:text=The Thai Baht is expected,macro models and analysts expectations.

 

[flyingtlger]

4 minutes ago, Mike Lister said:

cheaper Baht is unlikely to help exports

That is debatable....

[Mike Lister]

1 hour ago, flyingtlger said:

That is debatable....

There are plenty of international studies to confirm this, even by BOT. The problem is that over 60% of export bills are settled in USD. It that is incorrect, we should have seen Thai exports surge in recent times and we haven't.

[Mike Lister]

Two graphs vis a ve Baht strength and exports:

 

[Mike Lister]

All bets are off on the Baht. I just read that the cabinet has approved THB 560 bill in extra borrowings, not fund the digital wallet which happens to be that exact amount, but to pay for a budget deficit. If I read that correctly, the government will no longer borrow specifically for the digital wallet giveaway but will instead fund it from a budget deficit. 

 

This is going to lead to inflation and loss of investor confidence, the new borrowings total over 750 billion baht or 15% of GDP, the highest it has ever been, during peak covid it was 9%. 

[Mike Lister]

Oh yes, did I mention also that the Fuel Subsidy Fund is in debt for THB 85 billion and burning up further subsides at the rate of THB 200 million per day?

[Mike Lister]

That forecast of 36+ Baht per Dollar is now reality, a jump this morning puts it at 36.05. The latest US CPI results were worse than expected, consequently, markets do not now expect a US Fed rate cut before mid year. US equities sold off, USD strengthened (the US Dollar Index rose and is close to 105%) plus the price of oil increased....more bad news for the Fuel Subsidy Fund.

 

Of major concern now must be that US inflation is far harder to tame than previously expected, yet the Thai Cabinet has approved new record level borrowings equal to 15% of GDP. This is a really bad combination of, what is effectively, Quantitative  Easing at a time when inflation is not under control. The BOT is at least vindicated by holding rates unchanged, that much at least helps. Trying to strengthen the Thai economy via QE, without first making structural changes to it, is diametrically opposite to the desired rate cuts and the inflation the QE will unleash.

[AAArdvark]

And how does BRICS effect this? 

[Mike Lister]

1 hour ago, AAArdvark said:

And how does BRICS effect this? 

It will potentially reduce the volume of trade bills that are settled in USD but not significantly so for some years. Of key importance is that oil is still paid for in USD and USD remains at the core of the FOREX system. Expect it to be a decade before any real impact is felt.

[Mike Lister]

Troll post removed

[crazykopite]

Im one of those that believes the Thai baht has been manipulated for years and I still believe that I also believe that before the year is out Thailand will be on its knees in debt household debt is at its highest  there is a lot of unemployment and regardless what TAT spew out on a daily basis tourism is suffering immensely in other words Thailand is about to go belly up however I doubt I will ever see the £ at the 74 baht level like it was back in 2005 if it hits 50 to the £ , I won’t complain !

Edited February 14 by crazykopite

[Mike Lister]

2 minutes ago, crazykopite said:

Im one of those that believes the Thai baht has been manipulated for years and I still believe that I also believe that before the year is out Thailand will be on its knees in debt household debt is at its highest  there is a lot of unemployment and regardless what TAT spew out on a daily basis tourism is suffering immensely in other words Thailand is about to go belly up however I doubt I will ever see the £ at the 74 baht level like it was back in 2005 if it hits 50 to the £ , I won’t complain !

OK, fair enough.

 

Do you think that BOT wants the baht stronger or weaker against the Dollar?

[Stevemercer]

I think the Baht has been 'talked up' by the central bank and previous government. They see a strong Baht as a mark of good economic management and still have bad memories of the 1997 crisis.

 

Sure, the US dollar is strengthening and will continue to do so against most currencies. I deal with the Australian dollar which seems to move in tandem with the Thai Baht against the US dollar.

 

The Baht has continued to maintain its value despite poor liquidity and economic fundamentals. The current government is calling for a drop in interest rates which would put pressure on the Baht. I think the Baht is probably over-valued by 10-15%. Such a 'real' drop (e'g. not just an 'apparent' drop against a rising US dollar) would make Thai exports competitive.

[ChaiyaTH]

It did not even start yet, just wait and see.

[Mike Lister]

13 minutes ago, Stevemercer said:

I think the Baht has been 'talked up' by the central bank and previous government. They see a strong Baht as a mark of good economic management and still have bad memories of the 1997 crisis.

 

Sure, the US dollar is strengthening and will continue to do so against most currencies. I deal with the Australian dollar which seems to move in tandem with the Thai Baht against the US dollar.

 

The Baht has continued to maintain its value despite poor liquidity and economic fundamentals. The current government is calling for a drop in interest rates which would put pressure on the Baht. I think the Baht is probably over-valued by 10-15%. Such a 'real' drop (e'g. not just an 'apparent' drop against a rising US dollar) would make Thai exports competitive.

I agree completely that successive governments have lived in fear of repeating the '97 crisis and have played things far too safe for too long. An example of this is government borrowings that have not exceeded 60% of GDP since the crash. Another example is the way they have continually built their Foreign Currency Reserves, far beyond a level that is required.

 

By keeping imports low and exports high, successive governments have mostly always operated a trade surplus. This in turn has increased the Reserves and cause the Baht to strengthen. But I vehemently disagree that any government has actively sought to strengthen then Baht, all the intervention that has taken place has been to weaken it, an action that offsets the trade surplus effects.

 

Emerging Markets and Developing Economies are at the mercy of Dollar values, which is why BRICS and currency swaps are so appealing. If BOT did nothing, the Baht would end up so strong that nobody would buy Thai exports and their would be a trade deficit every month and a current account deficit at year with precious little in the Foreign Currency Reserves, the latter being grown on the back of export trade bills almost exclusively. 

[retarius]

As a disclaimer, I'm not any sort of economist or, indeed, knowledgeable about currencies but it seem to me that currencies that are in high demand tend to appreciate. So when Japan had very strong exports it also had a very strong currency. Today it's exports have crashed and its currency as measured against the $ is in the pan. The I left Japan in 2008 it $/Yen was about low 80s, last year when I went it was 146, making Japan very cheap to live and markedly cheaper than Thailand (in supermarkets).  

In Thailand I missed the halcyon days when the baht crashed and expats were all like millionaires. My brother told me the baht was 72 to the pound in 2003/4 when he built his house, in the aftermath of the 1997 crisis and Thai economic crisis, but since I have been here the baht has generally appreciated from around 40 to the USD in 2005 to low thirties and even very high twenties, a few years back. We are now mid thirties for the dollar, having seen a few years of weakening (my impression, anyway, of bringing money over). Exports from the manufacturing sector seem to be weakening, so the demand for Thai baht is also weakening, add that to an indifferent interest rate on bonds etc. 

My expectation is that the baht will be listless until either interest rates 'improve' significantly for investors, or the export and tourism industries that generate demand for the baht improve markedly. For now I am not betting against the dollar. 

[kevin612]

When the fed lowers the interest rate this year and the rest of the countries follow this xxxx, the Thai baht will be like 31-32, no longer 35-36. Stay tune 

[kevin612]

People just don’t realize with such high interest rate, the baht is only between 35-36 vs 1 US dollar. Somehow the baht easily jumps to 31 once the inflation is officially over.

[Acharn]

23 hours ago, Mike Lister said:

All bets are off on the Baht. I just read that the cabinet has approved THB 560 bill in extra borrowings, not fund the digital wallet which happens to be that exact amount, but to pay for a budget deficit. If I read that correctly, the government will no longer borrow specifically for the digital wallet giveaway but will instead fund it from a budget deficit. 

 

This is going to lead to inflation and loss of investor confidence, the new borrowings total over 750 billion baht or 15% of GDP, the highest it has ever been, during peak covid it was 9%. 

Alas, nobody has figured out yet what causes inflation, much less hyperinflation. Pundits in the USA have been predicting catastrophe from our budget deficits since 1789, and yet we persist. In fact, the five times we have seriously lowered the public debt have produced recessions/depressions. Japan's public debt is well over 200% of GDP, yet they persist. The big problem is the debt denominated in USD.

[Mike Lister]

2 minutes ago, Acharn said:

Alas, nobody has figured out yet what causes inflation, much less hyperinflation. Pundits in the USA have been predicting catastrophe from our budget deficits since 1789, and yet we persist. In fact, the five times we have seriously lowered the public debt have produced recessions/depressions. Japan's public debt is well over 200% of GDP, yet they persist. The big problem is the debt denominated in USD.

There's ample evidence that QE causes inflation and that's effectively what the 560 bill digi wallet giveaway is.

 

https://www.investopedia.com/articles/investing/022615/why-didnt-quantitative-easing-lead-hyperinflation.asp

[RayC]

If the official figures are to be believed, then inflation is not (currently) a problem in Thailand. Indeed, in December the country experienced deflation (although the figure excluded government subsidies). The BoT forecast a 2%pa inflation rate for 2024, slap bang in the middle of the target range of 1 - 3%pa so, in theory at least, there should be scope for some increase in government  spending without having to be unduly concerned about inflation at this stage.

 

With regard to exports. A purely anecdotal experience. I noticed that there has been a relative shortage of fruit in our local markets (Banglampoo and Thewet) so I - or more accurately  the wife - asked one of the stall holders if there was a problem. He replied that he was having problems getting supplies from the wholesalers as a lot of produce was being exported (mainly to China). As I said, purely anecdotal. No idea re the veracity/ validity of this claim and/or whether it is part of a wider trend.

 

[Mike Lister]

2 minutes ago, RayC said:

If the official figures are to be believed, then inflation is not (currently) a problem in Thailand. Indeed, in December the country experienced deflation (although the figure excluded government subsidies). The BoT forecast a 2%pa inflation rate for 2024, slap bang in the middle of the target range of 1 - 3%pa so, in theory at least, there should be scope for some increase in government  spending without having to be unduly concerned about inflation at this stage.

 

With regard to exports. A purely anecdotal experience. I noticed that there has been a relative shortage of fruit in our local markets (Banglampoo and Thewet) so I - or more accurately  the wife - asked one of the stall holders if there was a problem. He replied that he was having problems getting supplies from the wholesalers as a lot of produce was being exported (mainly to China). As I said, purely anecdotal. No idea re the veracity/ validity of this claim and/or whether it is part of a wider trend.

 

I cant prove that there's some smoke and mirrors involved in the inflation estimate but all my senses tell me there are and they are supported by lots of anecdotal evidence! Regardless......the economy can absorb some inflation, as you correctly say, the question is whether it can absorb 15% of GDP, injected in cash form directly into the hands of the consumer at a time when global recovery is still not complete.

[RayC]

2 hours ago, Mike Lister said:

I cant prove that there's some smoke and mirrors involved in the inflation estimate but all my senses tell me there are and they are supported by lots of anecdotal evidence! Regardless......the economy can absorb some inflation, as you correctly say, the question is whether it can absorb 15% of GDP, injected in cash form directly into the hands of the consumer at a time when global recovery is still not complete.

 

You raise a fair point.

 

Like you, I question why the government feels the need to give Bht10k each to 50,000 Thais at a time when consumer spending in Thailand is at an all-time high and consumer confidence has been steadily increasing over the last year. LHowever, my main objection isn't based on the total cost of the exercise but the untargeted nature of it.

 

Imo there is undoubtedly a need for government support for the millions of poor and underprivileged Thais. There is also a case for increased government investment in some of the antiqued infrastructure. What I fail to see the need for is to give Bht10k to middle-class Thais so that they can pass the money onto The Central Group, IKEA and the like.

[Acharn]

On 2/14/2024 at 6:06 PM, Mike Lister said:

There's ample evidence that QE causes inflation and that's effectively what the 560 bill digi wallet giveaway is.

 

https://www.investopedia.com/articles/investing/022615/why-didnt-quantitative-easing-lead-hyperinflation.asp

Well, we had QE for twelve, fifteen years, and until two years ago the CPI inflation rate stayed at 2% or less. It was great for the stock market, though. I haven't read the link you enclose, but the headline seems to agree with me. Sometimes people luck out and inflation follows their prediction; sometimes they don't and it doesn't. Nobody knows what causes it. I used to really like Milton Freidman's theory, inflation is a purely monetary effect, but that didn't pan out.