The Monetary Policy Committee (MPC) unanimously voted to maintain the policy rate at 0.5% for the ninth straight meeting. We believe the BOT will leave the rate unchanged for at least another couple of years. The BOT believes that previous financial support schemes, such as rehabilitation loans and asset warehousing, will benefit businesses and households more than lowering the policy rate further.
BOT lowered its growth projection for 2021 to 1.8% from 3% in March, in line with our estimate of 1% to 2% since the beginning of the year. The weaker economic forecast was primarily due to the absence of international visitors and the ongoing third wave of COVID-19. At the moment, there are more than 3,000 new confirmed COVID-19 infections per day, and only about 8% of Thais have been vaccinated. The Phuket Sandbox, which will allow quarantine-free travel for vaccinated visitors, is expected to bring in only about 150,000 visitors – a drop in the bucket compared to the tourist figure in 2019.
Following the new surge of COVID-19 pandemic, market sentiment has deteriorated rapidly. As a result, the UTCC’s consumer confidence index decreased to 44.7 in May 2021, down from 46.0 the previous month, the lowest reading since February 1999. On the business side, some firms had to temporarily halt operations after discovering COVID-19 breakout among the factory workers, causing business confidence to fall to 43.0 in May from 46.0 a month earlier.
As the outlook for tourism industry in Thailand stays clouded and the COVID-19 situation remains uncontrolled, THB will remain weak. With the Fed’s tightening stance, we therefore expect the Thai baht to move to the 32 – 33 range in the coming months.
Due to strong global demand and low base effect, Thailand’s export growth hit an 11-year high in May
Thailand’s May exports increased by 41.59% from a year ago, the biggest gain in over 11 years, as global demand strengthened. This reading is greater than a Bloomberg survey prediction of a 33.50%YoY increase in May. Exports soared by 45.87% YoY after excluding gold, oil-related items, and weapons, in line with the rising Global manufacturing PMI, which has been over 50 for eleven months in a row. Meanwhile, imports also grew by 63.54%YoY to $22.26 billion, resulting in a trade surplus of $795.95 million.
Automobiles, equipment, and parts are still in high demand, contributing by more than 11% of May’s export growth. Thai automobile exports rose by 170.34% in May, thanks to the robust economic recovery of major trading partners such as the United States, Australia, Japan, Vietnam. However, there are still risk factors to be aware of, such as the ongoing semiconductor shortages and the rising number of COVID-19 cases in Thailand, both of which could severely disrupt the manufacturing process.
Another major driver to Thai exports this month are strong global demand of lockdown-related and remote working products. (Contribution to growth: Electronics: 5.7%, Electrical appliances: 5.39%) However, the strength in electronics export will likely cool going forward since many countries have reopened their economies, prompting consumer to switch their consumption patterns away from manufactured goods, particularly electronics into services such as dining out, films, concerts and sport events.
Looking ahead, Thai exports should continue to grow, but the growth rate will likely moderate over the coming months as base effects dissipate. Nevertheless, South Korean exports rose by just 33.7% YoY in June, after surging by 59.1% YoY the previous month. This, along with increased shipping costs, points to cooling export growth in June and the second half of 2021.
