Southeast Asia’s second-largest economy posted a surprise current-account surplus in September and with tourist arrivals gathering pace, the broadest measure of trade may get better in the fourth quarter, according to economists from Standard Chartered Plc and Australia & New Zealand Banking Group.
The current-account surplus may reach as much as US$3 billion during the October-December period though a lot will depend on the trajectory of energy prices, said Krystal Tan, an economist at Australia & New Zealand Banking Group. Increased flight connections and the recent easing in border measures in key source markets like Japan, Taiwan and Hong Kong will fuel the tourism recovery, Tan said.
A return to current account surplus should help ease a selloff in baht that’s slumped almost 12% this year to a 2006-low as the dollar rallied against most currencies amid rising US interest rates. Thailand’s central bank has lagged behind its peers in hiking rates, saying it will follow a measured approach to policy normalisation to shield a fragile economic recovery.
“All else equal, an improving current-account balance should help lower pressure on the baht, but the currency trajectory will still be beholden to external developments,” Tan said.
The current account posted a deficit of US$17.7 billion in the first nine months of the year, wider than the Bank of Thailand’s full-year forecast for a US$14.4 billion shortfall. But it might swing back to a surplus of US$5.6 billion next year, the finance ministry said last week.
The nation may continue to post surplus if tourist arrivals remain strong, Bank of Thailand deputy governor Mathee Supapongse said at a seminar on Wednesday. The weakness in baht hasn’t had any significant impact on the overall economy and inflation, he said adding the currency slump was in line with other regional currencies and due to the dollar’s strength.
The baht gained as much as 0.5% to 37.564 to a US dollar on Wednesday, the highest level since Oct. 10.
Rate differentials
But the turnaround in the current account alone may not help reverse baht’s fortune as it is fighting against the large and widening rate differentials between Thailand and countries aggressively raising interest rates to quell inflation, said Pipat Luengnaruemitchai, chief economist at Bangkok-based Kiatnakin Phatra Securities Pcl.
Standard Chartered expects baht’s performance to reflect Thailand’s improving economic fundamentals, its Bangkok-based economist Tim Leelahaphan said. Tourism recovery will gather further momentum as “hopes are high for the peak season” until the end of the first quarter next year, he said.
“Monthly tourist arrivals, while still far below the 3 million pre-pandemic level, are a clear boon to the current account,” Tim said. “Thai baht should be in line with Thailand’s economic fundamentals that are improving.”