The Bank of Thailand is keeping an eye on the country's current account, which could be in deficit for the second consecutive year, given a sluggish export sector and government plans for major investments in its transport-infrastructure project and other
The government’s mega-projects and other public investment will mean import of capital goods and stimulated consumption of imported consumer goods, both likely drivers for current-account deficits.
However, the current-account deficit is expected to get narrower in the next two to three years on the back of likely improvement of the trade balance after a global economic recovery, a study by the central bank noted.
In 2012, Thailand’s current account was in a deficit at 0.4 per cent of gross domestic product. That widened in the first 10 months of last year and there are signs of this trend continuing in 2014.
The current-account balance could improve if manufacturing efficiency is enhanced and Thai operators make the necessary adjustments to cope with changing consumer behaviour in the world market, the BOT said.
Thailand retains satisfactory capacity to handle capital outflow, with low external debts and high foreign reserves, the study noted.
It said Thailand had witnessed reduced surpluses or even deficits for its current account in some periods mainly on higher gold imports for investment purposes, foreign investors’ higher remittance of profits and dividends, and the export slowdown.
For the first 10 months of 2013, net gold imports totalled US$10.2 billion (Bt337 billion), and the 2012 figure was $5.6 billion as Thais invested more in gold in the past five years, thanks to high returns and low volatility.
Net gold imports averaged $600 million per annum during the period.
In the second quarter of 2013, foreign investors’ remittance of profits and dividends increased 40 per cent from 2012 in the wake of Thailand’s economic recovery after the 2011 floods, the first-car policy and the appreciation of the baht early in the year. Usually, foreign investors make such remittances to their home countries in the second and third quarters of every year.
Lower export expansion
Thai exports, which should be under close watch, could face lower expansion in the near future on weakening supply and strong international competition.
Some industries, such as smartphones and solid-state drives (SSDs), are facing difficulties keeping up with changes in production technology and consumer tastes, while labour-intensive industries are carrying higher wages, which make them lose price competitiveness.
Exports expanded by just 0.1 per cent in the first 10 months of last year, hit by the global economic slowdown, compared with 3.1 per cent in 2012.
Between 1993 and 1997 when consumption and investment grew quickly, with high imports of consumer and capital goods and a fixed exchange-rate regime, Thailand, with annual GDP growth of 10-15 per cent, confronted a current-account deficit of 6-8 per cent of GDP.
From 1998 to 2011, when the baht was depreciating amid export growth of 10.8 per cent per year and an import slowdown, trade accounts were in high surpluses and foreign reserves also increased greatly.