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Weakening Baht


Glasseye

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If Thai "officials" are wise (ah, er, um).... they would allow the baht to continue trending toward weakening. This would assist in enabling their export markets to expand which would increase inflows of much needed monetary support which is desperately needed at a critical time for an economy that is teetering on crisis.

 

https://www.bangkokpost.com/business/2164615/exports-see-surge-as-baht-declines

 

A forex kiosk on Khao San Road in Bangkok. The baht has plunged in the past two months. (Photo: Nutthawat Wicheanbut)

A forex kiosk on Khao San Road in Bangkok. The baht has plunged in the past two months. (Photo: Nutthawat Wicheanbut)

The weakening baht against the US dollar has propped up the export sector, which could register higher growth this year if Thailand can overcome challenges ranging from the ongoing pandemic to shortages of containers and labour.

Baht trading on Wednesday opened at 33.45 baht against the dollar, moving in a range of 33.34-33.47 during day trade before closing at 33.36 baht.

The baht has depreciated by 10.4% against the dollar so far this year, becoming Asia's worst performing currency, according to a Reuters report on Tuesday.

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Chaichan Chareonsuk, president of the Thai National Shippers' Council (TNSC), said the weakening baht is considered a boon for exports in the remaining months of the year, urging exporters who have already secured purchase orders to accelerate production and shipments as quickly as possible.

 

Despite the weak baht, TNSC only forecasts 10% export growth this year because of a delay in the government's vaccine distribution, the ongoing pandemic spread and lingering obstacles like shortages of containers and labour as well as high freight rates.

Sanan Angubolkul, chairman of the Thai Chamber of Commerce, said the baht's weakness is good not only for exports, but also farmers who will be entitled to earn higher income.

"If we can contain the spread of Covid-19, the chamber expects exports have a chance to grow by as high as 15%," he said.

Tim Leelahaphan, an economist at Standard Chartered Bank (Thai), said the weakening baht against the US dollar has helped exports. However, strong shipment growth in the first half was mainly supported by the global economic recovery and higher demand from foreign trade partners rather than foreign exchange, he said.

In June, exports surged by 43.8% year-on-year, the highest uptick in 11 years. Exports rose for a fourth consecutive month after gains of 41.6% in May, 13.1% in April and 8.47% in March following a 2.59% contraction in February.

Outbound shipments fetched US$23.7 billion, the highest growth rate since June 2010.

The baht's depreciation also affected local importers, who are concerned the decline is outpacing other Asean currencies. In just over a month, the baht plunged from above 31 to the dollar to around 33 baht, Mr Tim said.

"The economic downturn caused by the pandemic should be a good time for businesses to import machinery and equipment to improve productivity once the economy recovers. Given the baht's weakening, they may be restricted in doing this," he said.

He forecasts the baht to appreciate briefly against the dollar the remainder of this year, with a mass vaccination push, strong exports and emergent tourism in the fourth quarter supporting the baht.

Mr Tim said the falling baht should not significantly impact foreign capital outflow, despite net selling from foreigners in the Thai bourse of around 100 billion baht this year.

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1 hour ago, Butch said:

Those Submarine contracts will get a bit pricey then...

That is what happens when you (allegedly) deliberately over value your currency...some people begin to find out and bet against it.

Yes, I agree. And, for that matter.... foresee a long, slow trend toward depreciation. At some point a more reasonable "leveling off". 

 

A what point that will be is the question, I reckon.   🧐

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14 minutes ago, Freee!! said:

I wouldn't mind it weakening a bit more in the period before I can come to Thailand again, will make it more affordable.

The place hasn't been affordable for a while now mate. We saw 37 baht to the £ pre covid, making a night out far from affordable. I can have 2 meals with drinks (2 for £10 plus, £4 for drinks on top) in my local pub for less than half that of a night out in pattaya @37 baht to the sterling.

Affordable is of course relative, but the exchange rate prior to covid was getting untenable for many.

It will weaken , especially when the GDP in Q4 of this year reveals the true results of the impact of the virus balanced against the made up figures of the Govt. I said it before, it is simply a matter of time before Thailand begins to default on the loans it has and when the IMF starts inspecting the books, Mr PCA will have an awful lot of explaining to do.

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3 hours ago, Butch said:

The place hasn't been affordable for a while now mate. We saw 37 baht to the £ pre covid, making a night out far from affordable. I can have 2 meals with drinks (2 for £10 plus, £4 for drinks on top) in my local pub for less than half that of a night out in pattaya @37 baht to the sterling.

Affordable is of course relative, but the exchange rate prior to covid was getting untenable for many.

It will weaken , especially when the GDP in Q4 of this year reveals the true results of the impact of the virus balanced against the made up figures of the Govt. I said it before, it is simply a matter of time before Thailand begins to default on the loans it has and when the IMF starts inspecting the books, Mr PCA will have an awful lot of explaining to do.

Bingo.... As you said "it's all relative", and I may add - depends on what someone considers "affordable" to be.

I've always considered 30 baht/$1 U.S, to be the benchmark. Anything over that to be gravy. But then, over time as apples and oranges gets mixed together it has a way of balancing out. 

As with most things in life.... timing is everything.

Those that are able to get in early, position themselves, take reasonable advantage of the exchange, and then hunker down budgeting on their baseline should do well. Those that go in and blow their wads thinking that things will all be a bed of roses for years are just setting themselves up for a massive letdown....  As many of us have witnessed or even been a part of in the 90's and beyond.

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7 hours ago, Butch said:

Those Submarine contracts will get a bit pricey then...

That is what happens when you (allegedly) deliberately over value your currency...some people begin to find out and bet against it.

Yup.  I saw a couple months ago, the U.S. put Thailand on a watch list of countries they suspected of manipulating their currency.  Now, keep in mind, that’s just an initial step and many other steps to go before being put on the dreaded list/sanctions for manipulating ones currency.  
 

Now, Thailand’s MO has always been to keep the baht strong and stable.  Regarding whether that is the correct way of running one’s fiscal/financials is another long & complicated conversation.  I guess, Thailand has the right to do as they please in terms of monetary policies.  
 

I’m sure for expats retired in LOS, it is a welcome uptick in the amount they have to work with.  For myself (still working), it’s a bit of a wash.  I keep a fair amount in thai banks, so that baht/amount has less purchasing power, but I of course still working/spending in Thailand bring over new dollars every trip back, so gain a bit more there. Since my first visit to LOS almost 15 years ago, the dollar has weakened vs the baht, so it’s a welcome sight to see it back around #33 +

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9 hours ago, Sea-Hawks said:

Yup.  I saw a couple months ago, the U.S. put Thailand on a watch list of countries they suspected of manipulating their currency.  Now, keep in mind, that’s just an initial step and many other steps to go before being put on the dreaded list/sanctions for manipulating ones currency.  
 

Now, Thailand’s MO has always been to keep the baht strong and stable.  Regarding whether that is the correct way of running one’s fiscal/financials is another long & complicated conversation.  I guess, Thailand has the right to do as they please in terms of monetary policies.  
 

I’m sure for expats retired in LOS, it is a welcome uptick in the amount they have to work with.  For myself (still working), it’s a bit of a wash.  I keep a fair amount in thai banks, so that baht/amount has less purchasing power, but I of course still working/spending in Thailand bring over new dollars every trip back, so gain a bit more there. Since my first visit to LOS almost 15 years ago, the dollar has weakened vs the baht, so it’s a welcome sight to see it back around #33 +

There have been fluctuations over the past few years between 29-33, nothing really radical. But I think the current trend now has legs. In other words it may rise further and stay there for a while. There are just too many factors looking ahead that play into this - overall Thai debt ratio, strength of the U.S. economy (short term, and long term), Thai consumer confidence, debt and lack of savings, massive political unrest (no end in sight), continued slow progress on covid and widespread uncertainities with that looking ahead.

I strongly believe that this trend will continue to move. Yet, I am certainly no expert, but it is not difficult to see.

And... as far a currency manipulation. Thailand is no China. They just don't have the weight to throw around like China, the E.U. or the U.S. They will have no real option IMO other than to submit. Things have finally caught up with them,

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No Chips --- 

 

This story will certainly go "under the radar" I expect. But presents significant challenges for the Thai economy that is already seriously weakened. Shutting the car plants for even a short period of time could create very serious consequences to the export component of their economy. 

For those who follow the exchange rates I would say that these shortages could contribute significantly to the continued trend of the baht depreciating.

 

https://www.bangkokpost.com/world/2167923/automakers-hard-hit-by-chip-shortages

 

Automakers hard hit by chip shortages

Ripple effect of Covid lockdowns in Southeast Asia felt globally

PUBLISHED : 19 AUG 2021 AT 17:35

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The Toyota logo is seen on a Corolla model at the 89th Geneva International Motor Show in Geneva, Switzerland, on March 5, 2019. (Reuters photo)

The Toyota logo is seen on a Corolla model at the 89th Geneva International Motor Show in Geneva, Switzerland, on March 5, 2019. (Reuters photo)

Toyota Motor Corp's shares slumped as much as 4.7% as the worsening chip shortage saw the world’s No.1 automaker suspend output for several days at almost all its plants in Japan next month, forcing a 40% cut in production plans.

Adjustments will be made to the production operations of plants for completed vehicles in Japan due to parts shortages resulting from the spread of Covid in Southeast Asia, Toyota said in a statement Thursday.

A total of 360,000 cars will now be made next month. The cuts were reported earlier by Nikkei.

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Some 27 lines in 14 plants in Japan will be impacted, affecting production of models from the RAV4 to Corolla, Prius, Camry and Lexus RX, Toyota said. That represents a hit to every one of the plants Toyota has across the country bar one.

 

“Especially in Southeast Asia, the spread of Covid and lockdowns are impacting our local suppliers,” Toyota’s purchasing group chief officer Kazunari Kumakura said. “Going forward, the company will look at ways of further diversifying its supply chains to not focus on one region and is attempting to find replacement parts from suppliers in other regions.”

Mr Kumakura declined to comment on specifics regarding Toyota’s parts shortages, but noted supply chains in Vietnam and Malaysia were particularly impacted.

Toyota maintained its annual operating profit outlook earlier this month, disappointing investors that had been buoyed by its peer-beating financial performance on the back of brisk global demand for automobiles. The carmaker kept its forecast for 2.5 trillion yen ($22.7 billion) for the fiscal year through March, versus analysts’ average projection for 2.95 trillion yen.

While a shortage of automotive chips has hindered many rivals’ ability to capitalise on strong global demand for cars over the past nine months, Toyota up until now had been relatively unimpaired due to its supply-chain savvy and the strong stock it keeps of key components such as semiconductors.

An alarming Covid outbreak in Southeast Asia has, however, weighed on the company. Toyota also has a large manufacturing presence in Thailand, where case numbers have been hitting records.

Last month, Toyota said it was extending production halts in Thailand due to Covid-related parts shortages. The carmaker’s plants in the country have combined production capacity of 760,000 units per year.

Volkswagen may also need to cut production further due to a semiconductor supply crunch, the German carmaker said on Thursday.

The auto industry is facing renewed strains after a recovery in demand stretched supply chains earlier this year.

"We currently expect supply of chips in the third quarter to be very volatile and tight," Volkswagen, the No.2 volume carmaker behind Toyota, said in answer to a request for comment by Reuters. "We can't rule out further changes to production."

The Wolfsburg-based carmaker said it expects the situation to improve by the end of the year and aims to make up for production shortfalls in the second half as far as possible.

Shares in European carmakers and suppliers were also broadly weaker across with BMW, Daimler, Renault , Stellantis and Volkswagen all down by more than 2%.

Ford Motor Co on Wednesday said it would halt output for a week starting Monday at production lines that build its best-selling F-150 pickup trucks because of the shortage. General Motors Co suspended production for a week at three North American truck plants earlier this month because of the same issue.

Nissan Motor earlier this month halted output for two weeks at a major Tennessee plant due to the impact of Covid-19 in Malaysia and chip issues.

The latest production woes follow news that German chipmaker Infineon, the top automotive supplier, had been forced to suspend production at one of its plants in Malaysia in June due to a coronavirus outbreak.

Infineon CEO Reinhard Ploss said on Aug 3 that the automotive industry faced "acute supply limitations across the entire value chain" and it would take until well into 2022 for supply and demand to be brought back into balance.

Meanwhile, three Democratic US senators on Wednesday asked the Taiwanese government for more help to address an ongoing chip shortage that has left numerous American auto production lines standing idle at times, according to a letter reviewed by Reuters.

The letter, dated Aug 18 and not previously made public, was sent by Michigan Senators Gary Peters and Debbie Stabenow and Ohio's Sherrod Brown to Taiwan's de facto ambassador in Washington, Hsiao Bi-khim, praising his "efforts to address the shortage".

But the senators added they were "hopeful you will continue to work with your government and foundries to do everything possible to mitigate the risk confronting our state economies."

Taiwan's Economy Ministry said on Thursday it was not able to immediately comment.

An auto trade group has estimated that because of the chip shortage, there could be 1.3 million fewer vehicles made in the US in 2021, a drop of more than 10% from pre-pandemic levels.

The senators told Hsiao "what we are hearing at this point is that the risk of shortages clearly has extended into 2022, despite the considerable efforts in Taiwan to augment production."

Last month, Taiwan Semiconductor Manufacturing Co Ltd (TSMC) , the world's largest contract chipmaker, said the auto chip shortage will gradually tail off for its customers from this quarter, but that it expects overall semiconductor capacity tightness to extend possibly into 2022.

TSMC declined to comment on the letter.

"Demand for vehicles — from cars to commercial trucks — is now up, yet the lack of semiconductor chips is preventing this renewed demand from being met," the senators wrote.

"At a time when our manufacturers should be adding extra shifts, they have had to idle US plants or curtail production. The US is now the most impacted region in the world."

The senators offered Taiwan help in addressing ongoing pandemic-linked issues.

"As policy leaders, we share a keen understanding of the challenge your country is facing and appreciate the steps you are taking to protect both the human and economic health of your country," they said.

In June, the United States sent Taiwan 2.5 million Covid-19 vaccine doses, more than three times the initial allocation of shots for the island.

The senators said they backed "President (Joe) Biden's efforts to make excess vaccines available to Taiwan."

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Very informative and I believe spot on analysis regarding significant components of the Thai economy, post pandemic. Looking ahead into the near and distant future macro policy will need to be dramatically adjusted in order to compete, stay relevant and stable. Not doing so could result in some very serious and long term consequences for the Thai economy. 

 

**** Rebuilding Walking Street ? I don't think will be very high on their priority list. Both regarding Thai investment and especially regarding International investments. 

 

"This ain't Kansas anymore Toto"

 

But then, regarding most things regarding economics - WTF do I know ?

 

https://www.bangkokpost.com/opinion/opinion/2171755/thai-economy-out-of-sync-out-of-sight-

 

Thai economy out of sync, out of sight?

Pavida Pananond
 
PAVIDA PANANONDTHAMMASAT UNIVERSITY PROFESSOR

PUBLISHED : 27 AUG 2021 AT 04:00

NEWSPAPER SECTION: OPED

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Cargo ships are seen arriving at Klong Toey port in Bangkok. As Covid hit the tourism sector, exports and foreign direct investment (FDI) have become the engine of the country's economy. (Photo: Patipat Janthong)

Cargo ships are seen arriving at Klong Toey port in Bangkok. As Covid hit the tourism sector, exports and foreign direct investment (FDI) have become the engine of the country's economy. (Photo: Patipat Janthong)

The changing nature of globalisation, compounded by pandemic-induced disruptions require a rethink of Thailand's place and direction in the global economy. Already hampered by pre-Covid trends of global slowdown in trade and investment, the economy is facing tougher challenges as the pandemic has forced multinational companies to reconsider their supply chain configuration. The changing contours of the global economy on the one hand and ongoing political tensions at home that have delayed much-needed structural reforms on the other are becoming a perfect storm that could blow away Thailand's chances of maintaining its once central role in Southeast Asia's economic dynamism.

Short of revenue from tourism, policy makers have pinned their hopes on the return of exports and foreign direct investment (FDI) as the global economy recovers from the pandemic. Hopes for an export recovery rose after goods exports surged more than 30% in the first quarter of 2021, according to the National Economic and Social Development Board (NESDB). For FDI, the Board of Investment (BOI) continues to believe that despite the slowdown in 2020, Thailand remains resilient as an investment destination, thanks to the country's attractive investment incentives, strong supply chain, and availability of raw materials and parts.

Such optimism overlooks two crucial challenges Thailand is facing in the global economy -- the changing nature of international production in recent years and Thailand's relative decline in national competitiveness compared to regional neighbours. Although Thailand's diversified economy, ranked second largest in Southeast Asia, will likely keep the country in the race for foreign investment, continuing to pin hopes on a recovery in the export-driven sectors and tourism may be too passive given that the nature and growth of global trade and investment flows has changed over the past three decades. These trends, including the slowdown in global trade and investment, were already ongoing prior to 2020 and are likely to accelerate further as the pandemic induces changes and reconfiguration in global supply chains.

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In the 1990s and 2000s, the rapid growth of international production that drove many multinational companies to look for alternative production locations in lower-cost countries led to sharp rises in global trade and investment flows. The fine-slicing of production processes in supply chains of export-intensive industries such as the electronics and automotive sectors was enabled by better communication technology and the supportive liberalisation policy of developed economies. Large multinational companies from the US, Europe and Japan expanded their global footprints to many developing economies, Thailand and Southeast Asia included, in search of cost efficiency in their production activities.

 

But this growth momentum stalled after the 2008-2009 global financial crisis and especially after 2010. The compound annual growth rate of global FDI flows drastically dropped from 20.8% in the 1990s to 4.9% during 2000-2007 and 0.4% in the post-crisis decade. The pandemic accelerated this decline further in 2020 when global FDI flows recorded a 42% contraction in value compared to 2019, according to the United Nations Conference on Trade and Development (UNCTAD).

On top of global protectionist sentiment, a key reason for the slowdown in global trade and investment flows was the increasing intangibility of overseas operations of multinational firms. The growth of service companies, particularly those in technology sectors, has reduced the need for direct investment in tangible assets, like local factories, that are needed in traditional manufacturing sectors. Tech giants from Amazon and Facebook to Alibaba and Lazada can reach markets worldwide through digital channels without much need for physical investment.

The ubiquitous spread of digital technologies has also enabled many manufacturing companies to turn to asset-light models of operations, focusing more on service than production. In other words, leading multinational companies have shifted to focus more on what they do, rather than what they produce and sell.

Take IBM, for example. The company got rid of personal computer manufacturing altogether in May 2005 to pursue data management services. When IBM expands abroad, the availability of computer parts will not be as relevant to their decision-making as the availability of skilled computer engineers.

Disruptions and vulnerabilities caused by the Covid-19 pandemic put a further strain on the value chain of many industries, from medical supplies to basic food items. The shortage of medical face masks and other medical supplies in the early months of the pandemic heightened concerns about over-reliance on long supply chains located in faraway countries. The Suez Canal accident in March 2021 further highlighted how fragile and vulnerable long and stretched-out global trade routes could be. These concerns have accelerated discussions in boardrooms of multinationals to reconsider how they manage their networks of overseas suppliers and subsidiaries.

Post-pandemic global production is unlikely to be the same. The changing nature of global production that had been ongoing prior to the pandemic, plus the increasing concerns over supply chain resilience are likely to lead multinational companies to demand more out of their foreign investment decisions. Policymakers of countries that need to attract foreign direct investment flows need to be aware of what these companies are looking for in their location decisions.

The same applies to Thailand. The rapid decline of the country as a foreign investment destination should be of urgent concern to policymakers. Based on UNCTAD data, Thailand has fallen from being the second-largest FDI destination in Southeast Asia in 2010, trailing only Singapore, to sixth in 2019, behind Singapore, Indonesia, Vietnam, Malaysia and the Philippines, respectively. With the pandemic wreaking havoc across the region, Thai FDI further contracted by 50% in 2020 compared to the previous year, a much sharper decline compared the region's average of 31% or Vietnam's 10% drop.

All these challenges should pose serious questions about how Thailand can navigate the changing nature of global trade and investment flows. The need to create value for investment in Thailand goes beyond the typical investment incentives based on taxes or investment privileges in special economic zones like the Eastern Economic Corridor.

Rather, knowing what Thailand can offer in the reconfigured value chain of global industries that is different than that of its regional peers is crucial for trade and investment policy directions. The sharp decline of foreign investment in Thailand may already indicate the country is falling out of sync with the changing nature of globalisation. Let's hope Thailand can get its house in order before it also falls out of sight for foreign and domestic investors looking to rearrange their value chain in the post-pandemic years.

 

 

 

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I studied economics ..... Thomas Carlyle described it as the dismal science.

Enjoyable read Glasseye may I concur with this point

"But then, regarding most things regarding economics - WTF do I know ?"

Trust me nobody knows ........ because events happen ........ 

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16 hours ago, nampla69 said:

I studied economics ..... Thomas Carlyle described it as the dismal science.

Enjoyable read Glasseye may I concur with this point

"But then, regarding most things regarding economics - WTF do I know ?"

Trust me nobody knows ........ because events happen ........ 

Yep, I only minored in it. So.. you are a bit more advanced than I am.    lol

 

The final class I took in Undergrad was an advanced econ course. I needed the credits from that class in order to have enough credits to graduate. I received a grade of "D", barley passing the final.   555555

 

It was the best D of my life as it enabled me to graduate !

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19 hours ago, nampla69 said:

I studied economics ..... Thomas Carlyle described it as the dismal science.

Enjoyable read Glasseye may I concur with this point

"But then, regarding most things regarding economics - WTF do I know ?"

Trust me nobody knows ........ because events happen ........ 

 

Paul Krugman, is my main guy. Rarely misses a beat. If more people would listen to him I think the world economies would be in much better shape. In the least be able to recover more quickly than we have in the past.

 

 

 

Edited by Glasseye
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