The private sector is encouraged by the rising shipments of agricultural and manufacturing products, despite the baht movements, trade conflicts and a trend for rising interest rates in parts of the world.

After a meeting of the Pracha Rat working group on the promotion of trade, service and overseas investment (D4) with over 40 export-related state and private units, Commerce Minister Sontirat Sontijirawong said the private sector has forecasted this year’s export growth at 9 per cent to about US$250 billion, based on the continuous growth in many industries.

Shipments of manufacturing products are expected to climb 11 per cent while exports of agricultural and agro-processing products are estimated to rise by 5 per cent this year.

However, private-sector concerns exist with the US-China trade war and further trade retaliations from other countries. They also suggested that measures to curb excessive volatility of the baht should be implemented and the Thai policy rate should be maintained.

“It’s good news that (Thai) exporters will continue to expand shipments in the latter half of this year with growth estimated at 9 per cent,” Sontirat said.

The Ministry of Commerce has maintained its forecast for this year’s export growth at 8 per cent and the figure will be reviewed in October.

Currently, the prices of agricultural products are highly volatile due to from natural disasters and increases in global production, Sontirat said.

Inching higher

Thai sugar exports, with its current price at 11-year low, is still rising. Total export this year is expected to inch higher by 0-2 per cent to $2.6 billion, he said.

Shipments of rice are projected to advance by 8 per cent to $5.6 billion while exports of food products are estimated to surge by 10 per cent to $20.2 billion.

Exports of tapioca products are expected to edge up slightly by 2 per cent to $2.85 billion this year due to low production. However, rubber export is expected to fall by 10 per cent to $5.45 billion due to falling global price.

Among manufacturing products, shipments of electronics products are expected to surge by 12 per cent to $41.2 billion, automobiles and parts by 18 per cent to $40.5 billion, electrical appliances by 6 per cent to $25 billion and plastic pellets by 12 per cent to $14.2 billion.

Sanan Angubolkul, vice chairman of Board of Trade of Thailand and head of the private sector in D4, said that purchase orders have continued to come in the latter half of this year but the figure may not be as high as that in the first half due to last year’s high base in export value.

In the second half of this year, Thai export is forecast to grow 7 per cent with estimated rises of 9 per cent in manufacturing products and 5 per cent in agricultural/agro-processing products. Combined the estimated growth in the latter half with an 11 per cent increase in Thai export in the first half, it is possible to see export growth of 9 per cent to $257.95 billion.

The private sector remains concerned and wants the authorities to leave the policy rate unchanged so that the baht will not be affected, while no short-term impact has been seen yet from the US-China trade war, he said.

He declined to forecast next year’s Thai export due to uncertainties, particularly US President Donald Trump’s policies and trade retaliations of major economic powers extending from the United States, China, Europe and Asean.

The average daily trading turnover was below Bt40 billion or a market turnover of 56 per cent of total market cap. It’s very low, compared to the 10-year average of 83.5 per cent (peak-101 per cent in 2010 and low-73 per cent in 2008, 2015 & 2017). To reach its 10-year low at 73 per cent, the daily trade at market cap of Bt17.59 trillion, must not be less than Bt52 billion- a level considered sufficient to drive the SET Index to above 1,700 points.

Local institutional investors were the main players with no signs of return of foreign capital. It’s hard for the SET Index to stay above 1,710 points if there are no positive movements in the market turnover and foreign capital.

As a positive news, the Thai general election is said to take place as soon as Feburary 24, 2019 or May 5 the latest.

US-China trade war continues to be a concern. We are waiting for the release of the US trade balance data for July on August 28 to find out its impacts on global and Thai trade Possible impacts on Thai export are expected from the fourth quarter onwards.

Investment strategy: Focus on selective buy. We pick CPF (FV@Bt30) for higher prices of swine and chicken, DCC (FV@Bt2.90) for its adjusted distribution channels and dividend yield of nearly 6 per cent.

Therdsak Thaveeteeratham,  Executive Vice President,

Research, Asia Plus Securities

The project, Promoting a Fair Business Environment in Asean, was launched yesterday by the UN Development Programme (UNDP).

It aims to promote a fair business environment in the region by developing transparent systems in the public and private sectors, championing sustainable business practices, as well as strengthening rule of law and anti-corruption mechanisms. The project will cover Thailand, Malaysia, Myanmar, Indonesia, the Philippines and Vietnam.

“The Asean Economic Community is currently the seventh largest economy in the world and its combined GDP is projected to grow 3-8 per cent over the next four years,” said Valerie Cliff, UNDP deputy regional director for Asia and the Pacific, at the project launch. “This represents a huge potential for lifting people out of poverty in the region, and highlights the need to foster inclusive growth to achieve the global goals and ensure that such economic growth leaves no one behind.”

The launch of the regional project aims to pave the way for “a multi-stakeholder effort to promote an enabling business environment for the private sector, reduce corruption risks and shape sustainable business practices” in Asean.

Patrick Keuleers, director of governance and peace-building at UNDP, highlighted the “importance of this initiative for promoting a new model of governance where governments and private sector work hand in hand to advance sustainable development” in the region.

“The UK government’s Prosperity Fund aims to reduce poverty through inclusive economic growth,” he said, referring to Britain’s support for the scheme.

Jonathan Turner, Southeast Asia regional director, economic and trade policy of the UK Foreign and Commonwealth Office, said: “The fund targets reforms primarily in middle income developing countries where 70 per cent of the world’s poor live.

We estimate around 200 million pounds will go to Southeast Asia to form strong collaborations and provide capacity-building to governments, regulators, and businesses in Thailand, Philippines, Malaysia, Vietnam, Indonesia and Burma, as well as supporting Asean-wide initiatives.

“We are delighted to launch this project in partnership with UNDP, the first under the regional Economic Reform Programme of the Prosperity Fund in Southeast Asia. We want to continue to advance government and business transparency and compliance with international standards, promote business integrity, and strengthen the ability of authorities to tackle corruption.”

The event featured discussions on how Asean countries can jointly pursue an agenda to promote sustainable practices of doing business and to move towards a model of inclusive growth. Participants included senior representatives from government, business, civil society and key development partners from the six target countries.

At the global level, the UK’s Prosperity Fund has a budget of 1.2 billion pounds to contribute to poverty reduction by promoting economic reform and development needed for growth in middle income countries, as well as creating opportunities for international businesses.

The fund’s Southeast Asia Economic Reform Programme is designed to tackle two fundamental constraints to growth in the Southeast Asia region: a poor business environment and underdeveloped financial markets.

Improving the business environment is a key enabler for economic growth and can provide a significant positive impact on poverty alleviation. It will positively impact companies in all sectors, providing a more solid foundation for international companies to invest and operate in the host countries.

In addition, according to a Bloomberg’s survey, most of economists continue to firmly believe that without inflation rising significantly beyond lower-bound of BOT’s target range, the central bank will maintain its policy rate at 1.5 per cent. Nonetheless, the question of “What are the impending risks of not hiking the rate?” is barely raised and await to be answered.

Prior to delving into associated risks of maintaining interest rate at 1.5 per cent, let’s look at overwhelming reasons why this year could potentially be the right time for Bank of Thailand to gradually hike the policy rate to boost the monetary policy space.

First of all, the fact that Thai economy is currently growing on par or even beyond its potential growth rate is agreed among economists. Unlike last year, this year’s economic growth becomes more broad-based. Thai economy is no longer supported exclusively by external demand like exports of goods and foreign tourism, but it is also driven by strong expansion in private consumption and recovery of private investment. Evidently, the latest report on Thai economy in Q2/2018 showed that private consumption expanded at a pace of 4.5 per cent , the highest growth figure since 2013. Interestingly, this record-high private consumption growth was also backed by continual acceleration in durable goods consumption such as automobile and household equipment which typically signal that Thai consumers are gaining confidence in their future wealth.

Hence, private consumption which accounts for about 50 per cent of Thai economy could brighten up overall economic outlook and make the economy ready for rising interest rate cycle.

Secondly, players in the capital market begin to buy in the prospect of the rate hike as shown by over 30 basis point increases in 2-year government bond yield from last year. Moreover, commercial banks’ lending behaviours start to change. As banks expect gradual rate hikes, more borrowers with fixed-rate loans are incentivized to change their loans to floating-rate loans. For example, in the past 2-3 years, mortgage loans were offered with 3-year fixed rate. Recently, they are changed to 1 year-fixed and 2-year floating rate in response to incoming rate hikes.

Now let’s get back to the first question. What if the BoT decide not to raise interest rate, are there any risks?

During low-interest rate environment, risk stemming from people changing their investment behaviours towards riskier investments has increased tremendously. Rapid growth of investments in Foreign Investment Funds (FIFs) and deposits at saving cooperatives do underpin such behaviours which could threaten Thailand’s financial stability should Thai investors fail to recognise underlying risks of any high-yield investments.

Though, these three points could be enough to justify BoT’s hawkish stance, the most consequential of all could be increasing risks in the future from global economic slowdown. As a matter of fact, eminent institutions such as IMF and World Bank are agreed that the global economic slowdown could begin next year from rising downside risks from China-US trade war, and tightening liquidity in global financial market from major central banks. If it is getting clearer that global economy as well as Thai economy could start losing streams, the central bank then should increase policy space when possible.

When the global crisis reemerges, and Thai economy receives the crisis fallout, the BOT might have to cut the policy rate to further stimulate the economy. Nevertheless, if the BOT reduces the rate amid declining global liquidity and deteriorating investors’ confidence, it could backfire such dovish policy moves by inducing abrupt and severe fund outflows from Thai capital market which do more harms than goods to economic recovery.

Without accumulating policy space this year, the BOT will have to cut interest rate by more than 0.25 per cent when the crisis arrives which would bring the policy rate to an uncharted level since implementation of policy rate. Even worse, the historical low policy rate (below 1.25 per cent) could trigger more fund outflows accompanied by less fundamental supports from current account balance since global economic crisis could greatly reduce revenues from exports of goods and tourisms.

Even with high current account surplus and large foreign reserves, over the second quarter of this year Thai financial market still endured dreadful fund outflows due to concerns over Fed’s aggressive rate hike and Sino-US trade disputes. Clearly, such gargantuan outflows of over Bt100 billion did increase overall market volatility such that Thai baht depreciated by 6 per cent from the first quarter making unprepared investors and businesses suffered from FX losses.

Therefore, as Thai economy growing above its potential, pushing inflation back to the Bank of Thailand’s target range of 1-4 per cent, Bank of Thailand could gradually increase the policy rate to reload the policy space. As a result, the policy rate could continue to rise from 1.5 per cent to 1.75 per cent by the end of this year and to 2.25 per cent by the end of the second quarter of 2019 with a 0.25 per cent hike each time. Avid investors and businesses should now be prepared for the end of low-interest rate.

Views expressed in this article are those of the author and not necessarily of TMB Bank or its executives.

Contributed by DUANGRAT PRAJAKSILPTHAI and POON PANICHPIBOOL. They can be reached at tmbanalytics@tmbbank.com

The National Economic and Social Development Board (NESDB) drew encouragement from yet another strong showing for overseas shipments in the second quarter of this year.

The economy expanded 4.6 per cent in the second quarter of this year, benefiting from increased spending by the public and private sectors, Thosaporn Sirisumphand, secretary-general of NESDB, |said.

Total investment increased 3.6 per cent year on year and public investment expanded 4.9 per cent year on year in the second quarter. Exports, a key driver of the economy, climbed 12.3 per cent year on year for the quarter.

In the first half of this year, the economy expanded 4.8 per cent year on year.

While the NESDB kept its 2018 forecast for GDP growth unchanged, it raised its estimate for expansion in exports from an earlier view of 8.9 per cent, citing an improvement in the economies of the country’s trading partners.

Southern region boost

At a mobile Cabinet meeting to cover Ranong and Chumphon provinces today, Thosaporn said that two areas targeted for a Southern economic development plan will be Ranong-Chumphon |and Surat Thani-Nakhon Si Thammarat.

Ranong’s port will be a focus for development in the Ranong-Chumphon area for a trade linkage to India and Sri Lanka, while a double-track railway will be developed to link the area with the Eastern Economic Corridor (EEC) on the hopes for the two provinces to become a logistics hub in the future, he said.

In regards to tourism, the Eastern side, the Gulf of Thailand from Petchburi and Prachuap Khiri Khan to Surat Thani’s Samui Island, and the Western side, covering the Andaman Sea with Phuket and Ranong, will be set for safer travel during the monsoon season.

In another area, covering Surat Thani and Nakhon Si Thammarat, both provinces’ agricultural produces such as oil palm and fruit will be improved in quality and added value, as well as being processed into new products, Thosaporn said. A centre for academic excellence will be established with support from educational institutes.

He said that the Southern border provinces will still be a centre for Halal foods and the Sadao checkpoint will come under focus for more trade and investment.