Thailand’s current account surplus consistent since 2014, unlikely to narrow down

Thailand’s current account (C/A) balance has been consistently in a surplus since end- 2014. Recent comments from several Bank of Thailand (BOT) officials have reiterated the central bank’s growing discomfort with a stronger baht. Measures to encourage Thai residents to invest overseas have been implemented to ease the pressure on the baht to strengthen further. The unit has gained some 4 percent against the dollar this year, placing it in right smack in the middle when compared to the rest of Asia-10 currencies.

Thailand’s current account surplus rose to 12.6 percent of the gross domestic product in 1H16, compared to 8 percent last year. While some moderation is set to follow in 2H16, the full-year total may still exceed 10 percent of GDP, which would be the highest since 1998. This comes even as exports are likely to shrink again this year. Robust tourism flows and still relatively weak import growth are the reasons behind the C/A surplus, DBS reported.

Demand for imports will rise as investment growth gains traction domestically. But the economy continues to struggle on this front. Private sector investment is growing at circa 2.5 percent y/y. While this is clearly an improvement from the average 1 percent seen since 2014, it remains well below its historical average of 4 percent.

Meanwhile, without a stronger domestic investment growth, a significant narrowing of the C/A surplus is unlikely. The Bank of Thailand is likely to continue with its waves of verbal intervention on the baht but any draconian measure is unlikely for now.