Asia’s Strongest Currency Adding to Challenges Facing Thailand

(Bloomberg) -- Faced with a year-long mourning period for King Bhumibol Adulyadej that’s set to curb spending, Thailand’s economy also confronts a new challenge: a resurgent currency that may hurt exports just as the industry is showing some signs of recovery.

The prospect of an orderly royal succession has stoked a 1.8 percent appreciation in the baht against the dollar since the king’s death on Oct. 13 -- the biggest climb in an Asian currency basket tracked by Bloomberg. The baht has strengthened 3.3 percent this year. Exports fell in all but six of the 24 months through August, customs data show, and probably declined again in September, according to a Bloomberg News survey.

The export industry was in decline even before the currency gains. Political upheaval, the rise of manufacturing rivals such as Vietnam and weak global demand put the brakes on a sector that makes up about 70 percent of gross domestic product. The $395 billion economy, Southeast Asia’s second largest, exports everything from electronics and cars to rice and rubber.

“That the global economy remains sluggish is also a hurdle, which explains the struggle faced by many export-dependent economies,” said Gundy Cahyadi, an economist at DBS Group Holdings Ltd. in Singapore. “Beyond that, Thailand also needs to think about its competitive edge given the rise of the manufacturing sector in the likes of the Philippines and Vietnam.”

Goods exports probably slid 1.3 percent in September from a year earlier, according to a Bloomberg News survey ahead of a report due Wednesday. They unexpectedly climbed 6.5 percent in August following a surge in vehicle shipments.

Thailand’s ruling junta declared a year of mourning for Bhumibol, who was a symbol of unity in a country that saw 10 coups during his time on the throne, the last in May 2014. Junta leader Prayuth Chan-Ocha has said elections could happen again from late 2017.

Bank of Thailand officials have said that some industries relying on domestic consumption may be affected during the mourning period, but that overall, the economy’s fundamentals remain sound.

The central bank has kept its benchmark interest rate unchanged since lowering it to 1.5 percent in April 2015, even with inflation close to zero and calls from the International Monetary Fund for looser policy to spur expansion.

“We don’t expect a rate cut, despite calls for the Bank of Thailand to slow the pace of baht appreciation,” said Tim Leelahaphan, a Bangkok-based economist at Maybank Kim Eng Securities Thailand Pcl.

Central bank Governor Veerathai Santiprabhob said last week the economy is recovering, cushioned by a robust financial system, low unemployment and a healthy fiscal position.

Annual gross domestic product growth is running at just over 3 percent. That compares with a yearly average of 7.5 percent in a decade-long boom to 1996, according to the World Bank. A push to make innovation and technological creativity bigger engines of expansion, called Thailand 4.0, remains a work in progress.

To contact the reporter on this story: Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net. To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Sunil Jagtiani

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