Thailand's huge current account surplus another signal of weak domestic demand

In the year-to-date, contribution from net exports to overall GDP growth is a full percentage point. This accounts for a third, and a pretty significant portion, of the 2.9% GDP growth seen so far this year. Yet, exports of goods are likely to shrink by 5% this year. Adding services, total exports are likely to be flat for the year. Indeed, the current account continues to post huge surpluses. Up until 3Q15, total current account surplus has reached more than 6% of GDP. It is likely to be more than 7% of GDP by the year-end, given that domestic demand remains lackluster. 

This may complicate things for the Bank of Thailand. It is no secret that the BOT is tolerant of a weaker baht, partly in an effort to boost export growth going forward. The central bank is unlikely to be too worried that the baht is now the third weakest Asian currency (against the US dollar) in the year-to-date. And from the domestic demand perspective, a stronger baht is unlikely to be much of a boost to overall GDP growth, given household deleveraging continues to weigh on private consumption growth. 

Foreign reserves are likely to inch higher if the current account surpluses persist. But the temptation to cut rates also lingers, if the BOT were to facilitate an even softer currency. The BOT is wise enough to recognize that boosting overall competitiveness of the manufacturing industry is way more important for export growth rather than solely tinkering with exchange rates. On this front, a close monitoring of government policies remains crucial going forward.