Kbank analyst paints grim picture as Thailand teeters on recession
The Thai economy is on the verge of a recession while the baht will remain strong, a financial analyst has warned.
Kobsidthi Silpachai, head of capital markets research at Kasikornbank, said it will be interesting to see whether Thailand’s economic growth slows in the fourth quarter compared to the third.
The economy expanded 2.4 per cent year-on-year, he noted, but quarter-on-quarter growth in the third quarter was just 0.1 per cent.
Had the National Economic and Social Development Council not revised downward growth in the second quarter by 0.2 percentage point, quarter-on-quarter growth would have been negative, Kobsidthi said at a seminar hosted by Kasikornbank on Wednesday (November 27).
He said that the chance of the Thai economy entering a recession next year was now 20 per cent, up from the 15 per cent forecast earlier.
“We haven’t yet experienced recession, but we’re on the verge of it if we look at quarter-on-quarter growth of 0.1 per cent in the third quarter, the positive result coming from the downward revision for growth in the second,” said Kobsidthi.
“It is challenging for the Thai economy in the fourth quarter as we see signs of further economic weakening,” he pointed out.
The baht’s appreciation is meanwhile expected to continue, to around Bt30.5 per dollar by the end of this year, Bt29.75 in mid-2020 and Bt29.25 by the end of next year.
A relatively high current-account surplus, estimated to be $30 billion next year, would underpin the strong value of the baht, he said.
Continuation of the trade war between the United States and China will also help ensure the baht remains a safe haven for foreign investors.
The Kasikorn Research Centre has forecast economic growth next year of 2.7 per cent, down from 2.8 per cent in its previous projection.
The US-China trade war will hurt Thai exports, which are expected to contract by 2 per cent next year, compared with estimated 1 per cent fall this year.
Manufacturing and employment are unlikely to expand much next year, and Thailand is also facing a labour shortage as the average age of the population rises.
Government spending and stimulus packages can shore up the economy in the short run but cannot bring about a higher growth rate, Kobsidthi warned.
The number of foreign tourist arrivals will increase little because of the global economic slowdown. With China’s economy sluggish too, Beijing is expected to promote domestic tourism next year, resulting in a drop in Chinese visitors to Thailand, he noted.
Even with the Kingdom on the fiscal ropes, the Bank of Thailand is unlikely to lower its benchmark interest rate due to limited monetary space, Kobsidthi said. “The current 1.25 per cent rate is a historic low, and a further cut would not curb the baht’s rise.”
The central bank, however, will face considerable pressure next year to do something to boost the economy, he said.
Due to high volatility in the financial markets, many investors have sold off their Thai bonds. They are also required by the central bank to hold a limited amount of baht currency.
Short-term bond holdings among foreigners has dropped to Bt50 billion from Bt107 billion – the level before the central bank imposed restrictive measures on the amount of baht that could be held, he said.
The outstanding maturity for short-term bonds held by foreigners is the lowest in 16 years, he noted.
Foreign holdings of long-term bonds have also decreased to Bt858 billion from Bt879 billion, he said.