Euro impact on China could hit asian partners
The Bank of Thailand is concerned that the impact of the escalating European debt crisis on China could have collateral effects on its Asian trade partners, including Thailand.
"We are closely monitoring [Europe’s debt crisis]. The countries are quite far way but interconnected globally. That could send ripples in either direct or indirect ways to others, particularly a large economy like China," Governor Prasarn Trairatvorakul said yesterday.
Exports to Europe accounted for 19.7 per cent of China’s exports in 2010, according to the Bank of Thailand’s International Trade Centre. Thailand is connected to China with 12 per cent of its exports flowing to that country.
"What we are watching is how the situation in Europe, through China’s trade exposure to Europe, will indirectly affect Thailand and other countries in the region," said Chantavarn Sucharitakul, senior director for the International Department.
It all depends mainly on the Greek political situation, Prasarn said.
The central bank has prepared four possible scenarios amid the worsening situation in the euro area.
The first scenario, as the base case, assumes that Greece remains in the euro zone and there is volatility, depending on the political and economic situations in the euro area.
"This is the most likely," Prasarn said.
The second is Greece’s exit from the euro with measures to limit risks of contagion to other European countries. The third comes with Greece’s departure from the euro zone with no or insufficient measures to limit contagion risks and this could shake the global economy with deeper recession in the euro area.
The worst is the euro zone’s breakup, which could severely drag down the global economy.
"No matter what happens, the central bank has the tools to handle any impact that may arise," said Paiboon Kittisrikangwan, an assistant governor. "We have monetary-policy space. The policy rate is relatively low and there is room for rate adjustment to cope with the economic situation."
There is also fiscal room as public debt relative to gross domestic product is low compared with the global standard, he added.
Since last August, there has been a slowdown in Thai exports. In 2011, Europe took 10.6 per cent of total Thai exports with Portugal, Ireland, Italy, Greece and Spain (PIIGS) accounting for 1.6 per cent, according to the International Trade Centre.
After Thailand’s recovery from last year’s floods, which disrupted supply lines, the recovery of Thai exports to the European Union has been slower than to other destinations, Chantavarn said.
Thai banks also have low direct exposure to the euro area, with 0.5 per cent of total assets in the EU and 0.0005 per cent in PIIGS.
