WITH the stronger baht constraining Thai economic growth, other small emerging market economies are facing the risk of recession, economists have warned.
Teerana Bhongmakapat, Chulalongkorn University’s former dean of economics, expressed concern about the baht’s rise against the US dollar and regional currencies.
“The overshooting baht doesn’t align with economic fundamentals and could hurt growth,” he told the Nation.
With 31 baht now worth $1, Thai exporters fret it will render their products less competitive on the global market. The average exchange rate on Friday was 31.347 baht per dollar, down from 32.351 baht on January 2, according to the Bank of Thailand.
Teerana said a combined central-bank rate hike in December and foreign investors’ positive sentiment have contributed to the baht’s rise in value relatively to the dollar and other Asian currencies.
Meanwhile economic fundamentals are not keeping pace, he said. Economic growth is expected to be less than four per cent this year.
‘Current growth sluggish’
Current growth is sluggish while private investment remains weak, with capacity utilisation ranging from 60-68 per cent, Teerana noted. Exports are expected to slow due to global economic deceleration.
With Thailand so economically reliant on tourism, he warned, any global factors that have an adverse effect on foreigners’ travels would badly hurt here.
Many analysts are worried about the US and China entering recessions in the next few years, but Teerana believes the world’s largest economies are unlikely to face either a recession or a growth contraction in two consecutive quarters. Rather, they’re likely to undergo slower growth, he said.
The US has a large and sound services sector and China has embraced a high-technology value chain in the wake of its manufacturing slowdown, he said.
However, small economies have a higher risk of hitting recessions, especially those being targeted for US economic sanctions, such as Turkey and Venezuela, Teerana said.
The slowing of global growth could also adversely disrupt Thailand’s production chain, he advised.
Teerana opposed the central bank’s previous rate hike, noting that the Thai economy has remained in a lower “growth trap” and inflation is quite low.
He did not accept the central bank’s argument that the current 1.75 per cent inflation rate could still accommodate economic growth.
“Look at the US – the world’s largest economy – which has had high growth and low interest, ranging from 2.25 to 2.5 per cent,” said Teerana.
“The interest rate market is expecting that most other countries will be cutting rates within one year, with the exception of Thailand,” said Kasikornbank capital markets research head Kobsidthi Silpachai.
Upcoming meeting critical
So the upcoming meeting of the Bank of Thailand’s monetary policy committee (MPC) is critical, he said.
If the MPC continues to flag concerns about policy space and search for yield, market expectations that the Thai interest rate is on the way up – even as neighbouring countries’ are lowering – will continue.
“That will create a diversifying of monetary-policy expectations that will be reflected in the exchange rates,” Kobsidthai added.
Panyapiwat Institute of Management president Sompop Manarungsan said he didn’t think China would suffer a hard landing, thanks to its wealth of financial resources. China has already boosted domestic consumption to compensate for the impacts of the trade war with the US, he said.
“However, should China’s growth rate drop below six per cent, it would be cause for concern for other countries, including Thailand, which have participated in China’s production chains,” Sompop warned.
Teerana and Sompop agreed that the US-China trade dispute would continue for some time, with current negotiations likely to produce nothing more than another temporary truce.
Credit Suisse’s Asia-Pacific office chief investment officer John Woods commented that the US economy is in a late growth cycle he expects to continue until October – forming at 10 years the longest unbroken period of growth in its history.
“We don’t see any sign of recession – so no recession before 2019. I’m pretty confident we won’t see anything falling off the cliff at least in the first six months of 2020 either,” he said.
“However, the US bond yield curve is very close to an inversion, and historically, yield-curve inversions have accurately predicted upcoming recessions in the US,” he warned.
The rare inverted yield curve happens when the rates of short-term bonds are higher than those of long-term bonds, since investors are sensitive to short-term rates and expect slower economic growth in the long run. THE NATION (THAILAND)/ASIA NEWS NETWORK