Tuesday, November 19, 2019

Thai economy insulated from global volatility despite rate hikes, trade war 

Oct 02. 2018
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By The Nation

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THAILAND’S economy and banks should be able to weather heightening global risks from rising US interest rates, although escalating trade wars could pressure global growth next year, according to sovereign and banking analysts at Fitch Ratings’ annual Thai conference in Bangkok yesterday.

 

Bank of Thailand Governor Veerathai Santiprabhob was the guest of honour at the event and delivered the keynote opening address. 

James McCormack, managing director, Head of Sovereigns at Fitch Ratings, highlighted that Fitch forecasts global economic growth of 3.3 per cent and 3.1 per cent in 2018 and 2019, respectively, led by continued above-potential growth in the US supported by fiscal expansion, and strong growth in China, notwithstanding the ongoing trade war.

Risks to the outlook, however, are growing, particularly for emerging markets. As global financial conditions tighten into next year with higher US interest rates, the end of quantitative easing by the European Central Bank and continued appreciation of the US dollar, international capital flows are likely to be more volatile, especially for emerging markets with the largest external funding needs and policy frameworks judged to be weaker. 

Thailand is very well placed to deal with these global challenges, running sizeable current account surpluses and maintaining a sound fiscal position. Further escalation of the US-China trade war is a threat to all open economies, including Thailand, and poses downside risks to 2019 growth projections, he said.

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In his presentation on the banking sector, Parson Singha, senior director, Financial Institutions at Fitch Ratings (Thailand) Ltd, noted that the banking sector in the Asia-Pacific region was mostly well-positioned to cope with gradual, well-signalled US interest rate hikes. 

One key concern is credit risk, especially in countries with high levels of leverage or weak corporate repayment ability – such as Vietnam, Mongolia and Indonesia. There are also potential liquidity risks if markets are disrupted in stressed scenarios. 

Nevertheless, the Asia-Pacific banking sector is supported by improving trends in the operating environment and regulatory backdrop. The Thai banking sector in particular appears able to cope with downside risks due to its limited reliance on foreign funding and sound banking sector buffers such as in capital and liquidity. 

Regional investment opportunities and risks were discussed in an executive roundtable. Vincent Milton, managing director of Fitch Ratings (Thailand), moderated a panel on the government’s role and policies in supporting regional investments, infrastructure investments in Asean, and challenges and opportunities for regional investments. 

Speakers on the panel comprised Theeraj Athanavanich, bond market adviser, Public Debt Management Office, Ministry of Finance; Helen Han, senior investment officer, Infrastructure and Natural Resources, International Finance Corporation; and Roongroj Rangsiyopash, president and chief executive officer, The Siam Cement Public Co Ltd.

The Fitch Ratings (Thailand) annual conference was attended by more than 300 executives and officials from the regulatory, investor, financial and corporate sectors. 

 

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