The bank’s Economic Intelligence Centre (EIC) in January forecast 3.8 per cent growth for 2019, but the growing impact of the trade conflict prompted the revision, said Yunyong Thaicharoen, first executive vice president and head of the EIC, who also cited tightening global financial conditions.

Yunyong was speaking yesterday at a press conference held each quarter by the EIC on the economic direction of Thailand.

As a result of the trade war, the EIC has cut its forecast for export growth to 2.7 per cent, from an earlier estimate of 3.4 per cent.

“Multiple meetings between US President Donald Trump and China’s Xi Jinping are set to occur throughout this year,” Yunyong said. “Although we expect China to meet some of President Trump’s demands, such as increasing imports of US goods to China and being more strict on intellectual property, the trade war is ultimately not about the US’s trade deficit with China. Instead, it is a competition between the two superpowers to advance their technological influence in the word.”

For this reason, Yunyong said he believes the superpower trade dispute will not come to a conclusion at a foreseeable date, making it a long-term problem for the Thai economy, which is integrated into the supply chain of goods affected by the tariffs each country has imposed on the other.

Private investment is also predicted to decelerate from the end of last year, with investor sentiment affected by factors such as the trade war and Thailand’s political uncertainty. The EIC predicts that private investment will grow by just 3.8 per cent, against 3.9 per cent expansion last year.

On Tuesday, the International Monetary Fund (IMF) cuts its forecast for global GDP growth from the 3.5 per cent forecast in January to 3.3 per cent.

“The global economy is expected to exhibit synchronised deceleration in growth, due to various factors such as the trade war and the impacts of the increase in interest rates by the US Federal Reserve back in 2018,” Yunyong said.

“Although the Feds have since signalled that they may not aggressively hike rates in 2019, the impacts of last year’s increased interest rate on the global economy still persist to this day.”

As for Thailand, Yunyong predicts that the Bank of Thailand (BOT) will maintain its policy rate at 1.75 per cent throughout the year, given the internal and external risk factors facing the economy.

“Furthermore, the inflation level in the first two months has been at a low 0.7 per cent. We predict that the inflation level in 2019 will be 0.9 per cent on average. This low inflation level is another incentive for the BOT to maintain their policy rate,” he said.

Positive factors for economic growth in 2019 include increased public investment and a recovery under way in tourism.

Public investment is estimated to grow by 6.4 per cent in 2019 from last year’s meagre expansion of 3.3 per cent. This is largely due to the proposed public infrastructure projects, which are estimated at Bt760 billion this year, according to the EIC.

“Investment from both the public and private sectors will be the key economic driver in 2019,” Titanun Mallikamas, assistant governor of the central bank’s monetary group, said at a separate event yesterday.

The BOT estimates that this year, public investment will grow by 6.6 per cent and private investment by 5 per cent.

“As these projects throughout the country and in the Eastern Economic Corridor (EEC) are ongoing projects, they are unlikely to be disrupted by political uncertainty and potential instability in the upcoming months,” Yunyong said.

The tourism industry has started to recover from last year’s slump. The EIC expects up to 40.7 million tourists to visit the Kingdom this year. As for the strengthening of the baht, the EIC expects the currency to remain strong throughout 2019, forecasting it will close the year at between Bt31 and Bt32 to the US dollar.

Given the baht’s strength, Titinan urges exporters to not only depend on price for competitiveness but focus more on the quality of their products to compete with Thailand’s rivals in the Asean region.

Somkiat Tangkitvanich, president of the Thailand Development Research Institute (TDRI), said: “The government needs to facilitate investment from Thailand to foreign markets, especially in this region.

“This will benefit Thai investors in the long run and help weaken the baht, which will benefit exporters in the country.”

Tada Phutthitada, president of the Thai Bond Market Association (ThaiBMA), expected the bond market to be flat until the end of this year. He hoped the Thai political picture to become clearer in June with a new government and its policies, while awaiting possible impacts from external factors, including the US-China trade war, Britain’s exit from the EU and the US economic expansion in the latter half of this year.

ThaiBMA has forecast new bond issues worth about Bt800 billion or in a range of Bt750-Bt850 billion this year, about 60 per cent, or Bt580 billion, of which are expected for refinancing, he said.

If the Thai economy improves with clear political developments and higher private investment, new bond issues may exceed estimates, he said.

New bond issuance in the second quarter is likely to see flat growth quarter on quarter. The first quarter saw a historic high in new bond issues, given mergers and acquisitions of large-sized companies that raised capital through debentures, he said.

In the first quarter of this year, outstanding bonds totalled Bt12.96 trillion, up 1.3 per cent from the end of this year with an average daily trading turnover of Bt81.36 billion, up 3.21 per cent. Foreign investors net sold Thai bonds totalling Bt42.31 billion in the first three months of this year.

At the end of this year’s first quarter, foreign investors had net accumulated investments in Thai bonds worth Bt924.99 billion, or 7.3 per cent of the total Thai bond market. Foreign investors held Thai bonds with a longer average maturity of 8.5 years, compared to those with average maturity of 7.88 years held at the end of last year.

Paiboon Nalinthrangkurn, chairman of the Federation of Thai Capital Market Organisations, said that the three-month Investor Confidence Index in April turned to neutral from bullish, falling by 17.72 per cent to 107.53 amid concerns over political stability as well as the outcome of trade negotiations between the United States and China.

Foreign investor confidence remained bullish while the confidence of proprietary portfolios, individual investors and local institutional investors was neutral.

The European Central Bank’s postponement of a policy rate hike, the Bank of Japan’s monetary easing, Brexit and global crude prices must be followed up on, Paiboon said.

Thanavath Phonvichai, director of the University of Thai Chamber of Commerce’s Centre for Economic and Business Forecasting, said the Thai political situation is now the major variable for the Thai economy this year.

If the formation of the new government is delayed, leading to street protests, the centre predicts that the Thai economy would grow slower than 3.5 per cent this year as both foreign and local investors are expected to postpone investment. Foreign tourists, particularly from China and other Asian countries, may cancel their trips to Thailand until the situation returns to normal, he said.

The centre maintains its growth forecast in a range of 3.5-3.8 per cent this year, assuming an easing of the US-China trade war and declaration of its policies by the new government by September, he said.

Small, hazardous particles known as PM2.5 in Bangkok and its vicinity, and the North early this year have inflicted losses of about Bt20 billion to Bt25 billion on the Thai economy, or 0.1-0.2 percentage point of economic growth, he said. Despite such economic losses, the Thai economy has been compensated by election spending of around Bt30 billion by Thai political parties.

The Saudi insistence on rigid output discipline isn’t without risk in Asia.

Riyadh has so far maintained its market share in the region, despite its self-enforced production cuts. For instance, supplies to China in January rose 34 per cent year on year to 1.4 million barrels per day (b/d), official government data showed.

But, an open arbitrage to Asia for US, North Sea and West African crudes, and the possibility of global demand growth picking up momentum increasingly threatens the kingdom’s carefully crafted strategy. For now, the Saudi’s are sticking to their game plan. Riyadh cut output to 10.15 million b/d in February, according to an S&P Global Platts survey. That was 160,000 b/d below its quota of 10.31 million b/d and the lowest level since May 2018. Energy minister Khalid al-Falih has warned output could go lower in March, to 9.8 million b/d.

He has good reason to talk tough. Riyadh’s economic strategy is centred on higher spending. In order to have any hope of balancing its books, analysts say it needs oil prices above US$84/b (Bt2,685) for the entire year, at the very least.

Saudi cuts come at a time when the world is feeling the pinch of medium and heavy sour crude volumes lost from Venezuelan and Iranian sanctions.

S&P Global Platts Analytics forecasts that US sanctions will cause Venezuelan output, which averaged about 1.10 million b/d in February to fall to 825,000 b/d in the fourth quarter of this year before dropping to an average of 750,000 b/d in 2020.

Meanwhile, Iranian crude remains in demand for now. According to a Platts survey, Tehran kept output steady in February, at 2.72 million b/d as several buyers took advantage of sanctions waivers the US granted to eight countries to keeping purchasing its crude. These waivers are set to expire on May 5 and a further extension looks uncertain.

Reflecting the Middle Eastern sour crude market’s strength, the Brent/Dubai Exchange of Futures for Swaps – a key indicator of Brent’s premium to the Middle Eastern benchmark – averaged 51 cents/b in February. This marks the lowest monthly average premium for the European benchmark on record, according to Platts data.

A narrow Brent/Dubai EFS spread implies that medium to heavy sour Dubai-linked crude grades are getting relatively pricier compared to lighter, sweeter Brent-linked crude grades from the North Sea and West Africa.

US oil growth

A flood of North American oil is gnawing at Saudi resolve.

US crudes are attracting the attention of plenty of Asian buyers. Various flagship North American export grades have been consistently trading at a steep discount against comparable light and medium Persian Gulf grades.

China’s state-run Sinopec has increased interest in US crude oil purchases after a lull of several months and more US VLCC oil deliveries are expected as early as May.

According to S&P Global Platts Analytics, US shale oil is poised to respond to tightness in the market if needed. A new 2 million b/d of pipeline capacity being added in the second half of 2019 also helps.

The International Energy Agency in its February report noted that US crude production alone this year is expected to grow by more than Venezuela’s current output of around 1.26 million b/d.

So it’s no surprise that after a gain of $5-6/barrel to over $67/barrel in February, front-month ICE Brent futures have since stabilised around the $65/barrel level. Platts Analytics expects the price to reach $70/barrel in the fourth quarter of the year but says that higher US shale oil growth poses a bearish risk.

Although Venezuela’s government is teetering, its crude remains in demand in Asia. Indian and Chinese refiners – the main customers of Venezuela’s state-run PDVSA in Asia – face difficulties in ramping up imports of the Latin American country’s crude from current levels. US sanctions, payment restrictions and shipping problems have complicated life for traders.

Asian refiners accounted for around 40 per cent of Venezuelan crude purchases before the US Department of the Treasury imposed sanctions on PDVSA on January 28.

Given that the arbitrage window for Brent-linked crudes is still wide open and there’s a gap in Venezuelan supply, Saudi Arabia will need to think hard about maintaining production cuts.

It was against this uncertain backdrop that a key six-country OPEC/non-OPEC market monitoring committee co-chaired by Saudi energy minister Khalid al-Falih and his Russian counterpart Alexander Novak met on March 18 in Azerbaijan. The full coalition will again gather in Vienna on April 17-18.

Contributed by Mriganka Jaipuriyar, head of news, Asia, S&P Global Platts.