The impacts of Thai baht appreciation on the economy
Thai baht movement during 1st of January to 19th of November 2010
An average exchange rate in the first 10 months of 2010 was at 32.01 baht per US dollar, appreciated by 7.17 percent from the same period of last year and 6.59 percent from an average exchange rate of 2009. Over the period of 1st — 19th November, Thai baht continued to appreciate to an average of 2 9 .7 4 baht per US dollar. Furthermore, Thai baht appreciated against other regional currencies including that of export-competing-countries. Nominal effective exchange rate (NEER) in October increased to 80.76 from 76.93 in December 2009. The key supporting factors for baht appreciation are as follows:
(1) Strong economic growth in Thai and Regional economy.
(2) Increase in capital inflow both in trade and investment accounts, resulted in continual surplus of Capital and financial account since September 2008.
(3) Market expectation over policy rate normalization under the interest rate hike environment.
The impacts of Thai’s baht appreciation on the economy
(1) The results based on NESDB general equilibrium model. By assuming that the baht (in nominal terms) appreciates by 10 percent (the actual appreciation was approximately 7.17 percent in the first ten months of this year), the impacts on the demand side are as follows:
%YoY Private Consumption Investment Export Import Net export Consumer price Total
GDP 2.27 3.10 -2.42 2.03 -16.55 1.24 -0.33
(2) The impacts on the economic structure. In the long run, production sector may contract, and, in turn, affects household income and business revenue.
(3) However, the negative impacts on Thai economy, as shown above, might be overestimated. This is because (i) Thai Baht appreciates in line with other currencies and (ii) the negative effect on Thai export would be limited as the Baht appreciation will be monitored and managed so that its fluctuation will be at the similar level of other competitive currencies. Nevertheless, the appreciation in Thai currency will lower the cost of imported capital goods and also support an expansion in private consumption and investment.
Policy recommendation
Thai baht appreciation trend is expected to continue in 2011 due to (i) strong growth in Asian economy, (ii) major industrial economies still in fragile stage, (iii) new round of quantitative easing measures by US and Japan, and (iv) policy rate hike in China. In this respect, the recommendation policy for easing impact on Thai baht appreciation are as follows:
(1) Increase capital outflow channel. Encourage state enterprise agencies and private sector to increase their oversea investment, especially in export-competing-countries. On the other hand, regulatory agency should consider measure to curb down short term capital inflow to prevent currency speculation if necessary.
(2) Encouraging the export sector to consistently use financial instruments to manage risk arising from the exchange rate fluctuation. In addition, increase access and understanding of financial hedging instruments to enhance competitiveness of SMEs. Moreover, government should provide financial supports for affected entrepreneurs.
(3) Hasten the repayment of foreign currency debts which are at present weak against Thai baht. Moreover, government should promote domestic resource-based exports and encourage the import of machinery to enhance domestic productivity.
(4) Promote domestic demand and use of Thai products in order to counter the fall in global demand. In addition, government should promote research and development (R&D) in innovative and creative products to focus on improving product value rather than competing in price. Related organizations should provide full cooperation in production, R&D and marketing of these products.
Economic Projection 2010 and 2011
Actual Data Projection
2010 2011
2008 2009
23 Aug. 10 22 Nov. 10 22 Nov. 10
GDP (at current prices: Bil. Bht) 9,080.5 9,041.6 10,000.9 10,072.3 10,777.3
GDP per capita (Bht per year) 135,528.8 135,144 148,162 149,634 159,435
GDP (at current prices: Bil. USD) 272.2 263.3 307.7 316.7 365.3
GDP per capita (USD per year) 4,062.2 3,936.0 4,558.8 4,705.5 5,404.6
GDP Growth (at constant prices, %) 2.5 -2.3 7.0-7.5 7.9 3.5-4.5
Investment (at constant prices, %) 1.2 -9.2 9.2 9.7 8.0
Private (at constant prices, %) 3.2 -13.1 12.1 13.9 9.8
Public (at constant prices, %) -4.7 2.7 1.7 -1.3 2.5
Consumption (at constant prices, %) 2.9 0.1 4.0 5.0 4.1
Private (at constant prices, %) 2.9 -1.1 4.1 4.9 4.3
Public (at constant prices, %) 3.2 7.5 3.9 5.5 2.7
Export volume of goods & services (%) 5.1 -12.5 15.1 14.3 6.0
Export value of goods (Bil. USD) 175.2 150.7 189.7 188.8 211.0
Growth rate (%) 15.8 -13.9 25.7 25.1 11.7
Growth rate (Volume, %) 6.0 -13.6 17.2 16.4 6.2
Import volume of goods & services (%) 8.9 -21.5 20.6 20.9 8.0
Import value of goods (Bil. USD) 175.6 131.3 174.8 175.5 199.0
Growth rate (%) 26.5 -25.2 32.9 33.5 13.4
Growth rate (Volume, %) 8.9 -23.1 24.9 25.5 7.9
Trade balance (Bil. USD) -0.4 19.4 14.9 13.3 12.0
Current account balance (Bil. USD) 1/ 2.2 21.9 15.1 13.6 12.0
Current account to GDP (%) 0.8 8.3 4.9 4.3 3.3
Inflation (%)
CPI 5.4 -0.9 3.0-3.5 3.2 2.5-3.5
GDP Deflator 3.9 1.9 3.0-3.5 3.5 2.5-3.5
Source: Office of National Economic and Social Development Board, 22 November 2010
Note1/ Reinvested earnings has been recorded as part of FDI in Financial account, and its contra entry recorded as income on equity in current account.
--National Economic and Social Development Board--