By The Nation
After a rocky start to the year, the outlook for exporters is set to worsen, according to the research unit of TMB Bank, which points to the monetary easing of central banks in major economies – including the United States, Europe and Japan – that could push the baht to a further 5 per cent gain by the end of this year.
TMB Analytics said exports - excluding gold and weapons - contracted by 4 per cent year on year in the first four months of this year. For the rest of the year, exporters face heightened risks and fluctuation in value in light of uncertainties from the trade sparring between the US and its major trading partner countries, notably in Europe and China.
The baht is projected to stay at 31.2 to the US dollar until the end of this year, up 5 per cent from last year.
The expected baht appreciation of 5 per cent could cut companies’ profits by about Bt17 billion.
Those business sectors that rely on export income and use local materials will suffer the worst impacts, with an estimated income loss of Bt66 billion and a projected gross profit margin drop of 0.3-3.2 per cent. This group includes producers of rubber products, seafood, meat and accessories.
Expected to benefit from the situation are those businesses that distribute products locally and import raw materials. They will gain from an estimated reduction in imported materials of Bt62 billion, and an increase of 0.3-4.9 per cent in gross profit margins. This group includes producers of machinery and parts, steel and other metals, electrical appliances, textiles, and medical products and equipment.
Those reliant on export income and import raw materials will not experience impacts, due to the effect of a natural hedge. This group includes producers of auto parts, beverages and chemical products.
Businesses engaged in agriculture that rely mainly on exports and use local materials have been pressured by the baht’s appreciation, as well as from existing problems including low prices, high competition and sluggish global markets, said Jitipol Puksamatanan, a strategist at Krungthai Bank.
If the baht continued its appreciation several business sectors - particularly small and medium-sized enterprises (SMEs) - will be affected or, at the worst, shut down their operations, he said.
“If the situation continues, and Thailand still faces a current account surplus, the baht will likely appreciate further. Management must focus on the long term. It’s difficult to [imagine a scenario where we] have a chance to see a baht depreciation. We have to find ways to develop products to compete with others,” he said.
Based a survey by The Nation, the baht switched to a sharp appreciation after the US Federal Reserve signalled more monetary easing, which promoted market expectations for two to three possible interest rate cuts this year.
Within the region, the baht hit its highest level in more than 25 years against the Malaysian and Indonesian currencies. It was trading at 7.50 to the ringgit, marking a gain of 42.3 per cent from its previous high of 12.99 per ringgit. At 2.19 to Indonesia’s rupiah, it is up 82.6 per cent from its prior high of 12.60.
Against the Indian rupee, the baht was trading at its highest in 21 years and seven months, at 0.45 to the rupee. This represents a jump of 62.5 per cent from its last high at 1.40 to the rupee.
The baht has appreciated against Vietnam’s dong by the most in 20 years and four months, at 0.0013 per dong. This is up 99.9 per cent from its last high at 2.71 per dong.
Against the Philippine peso, the baht is at its strongest in 20 years, rising to 0.6 per peso, up 40.6 per cent from its last high at 1.01 per peso.
Farther afield, the Thai currency has appreciated against the British pound by the most in 22 years and four months, at 39.7 to the pound. This is up 56.2 per cent from its last high at 90.72 to the pound.
Against the Australian dollar, the baht has gained the most 18 years and six months to 21.70, up 41.2 per cent from its last high at 36.90 to that unit.