(Bloomberg) -- A surge in the baht is adding to the challenges facing Thailand’s trade-dependent economy this year.
The baht’s climb of about 5 percent against the dollar in the past six months is the strongest in the world, according to data compiled by Bloomberg. Exports -- already smarting from the U.S.-China trade war -- may have fallen in December for the second straight month, a Bloomberg survey shows. The Commerce Ministry is due to release the trade report later Monday.
"It will be tough this year," said Duangrat Prajaksilpthai, an economist at TMB Bank Pcl in Bangkok. "Exports were already expected to slow down because of the impact of the trade war. Baht strength on top of that will curb export revenue when converted to local currency."
The Surge
The baht has jumped thanks to Thailand’s $207 billion of foreign reserves, a current-account surplus and dollar weakness sparked partly by the Federal Reserve’s recent dovish tilt.
The currency will continue to be strong this year, said Krung Thai Bank Pcl Chief Strategist Jitipol Puksamatanan. But ING Groep NV Economist Prakash Sakpal said politics could be a headwind amid uncertainty stemming from the general election due in 2019 after more than four years of military rule.
The Drop
Exports of goods and services are equivalent to about two-thirds of gross domestic product in Southeast Asia’s second-largest economy. Bloomberg’s survey indicates economists expect a 0.2 percent drop in goods exports in December compared with a year earlier. Growth in shipments has fizzled since a peak in early 2018.
Some commentators remain sanguine about the overall economic outlook. The World Bank, for instance, said last week that rising private consumption and investment are filling much of the gap from easing exports.
The Miss
The Bank of Thailand raised its benchmark interest-rate in December for the first time since 2011, by a quarter point to 1.75 percent, as it strives to normalize policy and prevent a build up of risk in the financial sector. But the baht’s climb could complicate matters by weighing on already below-target inflation.
"Low inflation may lead to a long pause in our slow rate-hike cycle this time," said Kampon Adireksombat, chief economist at Kasikorn Securities Pcl in Bangkok. "We expect the central bank to raise the rate only once this year, in the fourth quarter."
--With assistance from Tomoko Sato, Patricia Lui and Tomoko Yamazaki.
To contact the reporter on this story: Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net
To contact the editors responsible for this story: Niluksi Koswanage at nkoswanage@bloomberg.net, Sunil Jagtiani, Karthikeyan Sundaram
©2019 Bloomberg L.P.
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