Snap21 March 2018Updated one year ago

Thailand: An upside trade surprise

Re-pricing for narrowing external surplus and lingering political uncertainty will likely weigh on THB performance going forward


Trade surplus in February


Positive swing in trade balance

Consistent with our forecast, Thailand’s external trade balance bounced to $808m surplus in February from $119m deficit the previous month (consensus: $636m, ING forecast: $831m surplus). Export growth slowed to 10.3% year-on-year from 17.6% in January while imports also slowed, to 16.0% from 24.3%.

Weak domestic spending

Import growth outpaced export growth in most of 2017 and this trend continues to hold into 2018. We view this more as a function of rising global oil prices boosting the fuel import bill (see chart), rather than an underlying recovery in domestic demand. A side effect of weak domestic demand is a wide trade surplus, albeit with a modest narrowing of the surplus underway since last year. At $13.9bn, the trade surplus in 2017 was $7.3bn narrower than the previous year. It narrowed further, by $1.7bn YoY, in the first two months of 2018. If sustained this should drive the current account surplus below 10% of GDP in 2018, from 10.8% in 2017 and a record 11.9% in 2016.

Oil drives imports

Bloomberg, ING
Bloomberg, ING

THB re-pricing

The large trade and current account surpluses support positive sentiment toward the currency. The Thai Baht (THB) remains Asia’s top-performing FX with 4.4% year-to-date appreciation against the US dollar. We believe re-pricing for narrowing external surplus and lingering political uncertainty surrounding timing of general elections will weigh on THB performance going forward. We forecast a tight range trading of USD/THB around the 31 level through the end of the year (spot 31.2, ING and consensus forecast for end-2018: 31.0).