Fitch upbeat on nation's short-term prospects
Political stability key to improving score
Despite uncertainty from a potential global economic slowdown and US-China trade tensions, Fitch Ratings has a positive outlook on Thailand's credit rating and economy in the near future and could possibly upgrade the country's ratings in the next few years if positive economic fundamentals are maintained.
Thailand has a BBB+ sovereign rating from Fitch and could see an upgrade in the next 12-24 months if it continues with its economic framework and enjoys political stability.
Among emerging markets, Thailand and Vietnam alone have a positive outlook from Fitch.
"I think Thailand crossed a political threshold with its election and stable return to democratic governance," said James McCormack, managing director and global head of sovereign and supranational ratings. "This is unlike Hong Kong, where we downgraded its rating one notch due to its political situation."
According to Mr McCormack, Thailand could even potentially see a boost in tourism from those looking to avoid Hong Kong because of the ongoing protests.
As of June, Fitch predicted Thai GDP growth of 3.4% in 2020, higher than its 2019 prediction of 3.3%. This is trending in the opposite direction of global growth, which Fitch sees slowing from 2.7% in 2019 to 2.6% in 2020.
Mr McCormack said Thailand's high current account balance is creating upward movement in the baht against the US dollar. The strong local currency may be causing exports to shrink.
But while emerging countries with a weakening currency see growth in export volume, Fitch research shows that the US dollar value of their exports goes down. Fitch puts great importance on US dollar value when assigning ratings, as the dollar can be used to pay off debt. Many emerging markets rely heavily on commodity exports (which are settled in US dollars).
"The simple assumption that a weaker currency helps exports is not always correct," Mr McCormack said.
Although Thailand is sitting in a comfortable position relative to the rest of the world, it remains vulnerable to external pressures such as the US-China trade dispute, oil price shocks and the potential for an unforeseen event to significantly impact tourism, like last year's incident when a boat full of Chinese tourists sank in Phuket.
"It used to be that if the US sneezes then the world would catch a cold," said Parson Singha, senior director of financial institutions at Fitch Ratings Thailand. "Now, the updated version of this saying is that if China sneezes then Asia catches a cold."
According to Mr Parson, a Chinese slowdown would have the most negative impact on developed Asian economies with strong links to China: Singapore, Hong Kong, South Korea. Developing countries like Thailand and Malaysia would be affected much less.
Thai banks are well positioned in terms of potential vulnerabilities and loan-loss buffers and are able to cope with risks like a property market downturn, Mr Parson said.
Still, Thai banks' financial performance and strong position may be limited to the near term because of a challenging operating environment, he said.