Asia’s Strongest Currency Adds to Challenges Facing Thailand

Faced with a year-long mourning period for King Bhumibol Adulyadej that’s set to curb spending, Thailand’s economy also confronts a new challenge: a resurgent currency that may hurt exports just as the industry is showing some signs of recovery.

The prospect of an orderly royal succession has stoked a 1.7 percent appreciation in the baht against the dollar since the king’s death on Oct. 13 -- the biggest climb in an Asian currency basket tracked by Bloomberg. The baht has strengthened 3.2 percent this year. Exports rose for a second straight month in September, customs department data showed Wednesday, a rare back-to-back climb after declines for most of the past two years.

Political upheaval, the rise of manufacturing rivals such as Vietnam and weak global demand are among the long-term headwinds for the export industry, which makes up about 70 percent of gross domestic product. Merchandise shipments from the $395 billion economy -- Southeast Asia’s second largest -- span everything from electronics and cars to rice and rubber.

“That the global economy remains sluggish is also a hurdle, which explains the struggle faced by many export-dependent economies,” said Gundy Cahyadi, an economist at DBS Group Holdings Ltd. in Singapore. “Beyond that, Thailand also needs to think about its competitive edge given the rise of the manufacturing sector in the likes of the Philippines and Vietnam.”

The baht weakened 0.1 percent to 34.977 per dollar as of 4:18 p.m on Wednesday in Bangkok.

Goods exports rose 3.4 percent in September from a year earlier, beating the median estimate in a Bloomberg News survey of a 1.3 percent fall. Officials on Wednesday said improving agricultural and oil prices were set to provide some support for the rest of 2016.

Thailand’s ruling junta declared a year of mourning for Bhumibol, who was a symbol of unity in a country that saw 10 coups during his time on the throne, the last in May 2014. Junta leader Prayuth Chan-Ocha has said elections could happen again from late 2017.

Bank of Thailand officials have said that some industries relying on domestic consumption may be affected during the mourning period, but that overall, the economy’s fundamentals remain sound.

The central bank has kept its benchmark interest rate unchanged since lowering it to 1.5 percent in April 2015, even with inflation close to zero and calls from the International Monetary Fund for looser policy to spur expansion. 

“We don’t expect a rate cut, despite calls for the Bank of Thailand to slow the pace of baht appreciation,” said Tim Leelahaphan, a Bangkok-based economist at Maybank Kim Eng Securities Thailand Pcl. 

Central bank Governor Veerathai Santiprabhob said last week the economy is recovering, cushioned by a robust financial system, low unemployment and a healthy fiscal position.

Annual gross domestic product growth is running at just over 3 percent. That compares with a yearly average of 7.5 percent in a decade-long boom to 1996, according to the World Bank. A push to make innovation and technological creativity bigger engines of expansion, called Thailand 4.0, remains a work in progress.