Thailand: Current account surplus narrows in May

We thought that the sharp positive swing in Thailand’s customs-basis trade balance to a $1.2 billion surplus in May from a deficit of similar size in April meant the current account was in for a wider surplus in the last month. But the balance of payments data for May revealed just the opposite; a narrower current surplus of $958 million compared to the $1.4 billion surplus in April. The consensus forecast was for a surplus of $1.5 billion.

This puts the cumulative current surplus in the first five months of the year at $19.4 billion, which is $782 million wider on the year. The contrast with the $3.8 billion narrowing in the trade balance over the same period reveals that services trade continued to perform well this year, thanks to the tourism sector, with a 14% year on year surge in international visitors in the first four months of 2018.

After a strong run in the last four years, Thailand’s external payments have started to weaken this year and foreign exchange reserves have started to fall in May after peaking over $215 billion in the previous two months. These trends are here to stay as the global trade war threatens exports and confidence-sensitive capital inflows while rising oil prices boost imports. We forecast that the annual current surplus in relation to GDP will narrow to 7.5% in 2018 from 10.6% in 2017.

Weakening external payments are negative for the currency. The Thai baht (THB) is Asia’s worst performer in June with 3.4% depreciation against the USD, a reversal of fortune from being Asia’s outperformer last year through early this year. We don’t think the recent downgrade of our end-2018 USD/THB forecast to 33.8 from 32.3 will be the last (spot 33.1). We are looking for a further downgrade as we assess the impact on Asian currencies of an all-out trade war.