The year 2009 has been a nightmare for bankers even though the financial markets have been rebounding since March in the aftermath of the collapse of Lehman Brothers. Thailand, meanwhile, has suffered few deep wounds from the global crisis because local banks and corporations had learned difficult lessons in 1997.
Yet, several financial institutions and companies still face the risk of going bankrupt because they have far more debt than they can service. Therefore, 2010 could very well be a turbulent year and Thai banks, in particular, should be prepared. They should guard their positions and minimise their international exposure because nobody knows how events such as Dubai's debts might explode. The risks out there are enormous.
Given the bearish sentiment on the US dollar, the baht has continued on its upward path. Apart from the very choppy and volatile movements of Asian currencies during the second week of December, when the market started getting skittish and piled into the US dollar, UOB Research recently issued a report expressing its bullishness toward Asian currencies, including the baht. They should all continue with the appreciating trend over the next year. However, the magnitude of appreciation is unlikely to be hefty, with the state of the global economic recovery still fraught with uncertainty, and investor sentiments remaining fickle.
The Bank of Thailand will manage the baht cautiously through its intervention and will try to limit the currency's appreciation to support export. Still, the baht might just break through the Bt31 barrier against the US dollar by the end of 2010, though political instability might drag the appreciation down.
Meanwhile, interest rates in Thailand can't get any lower. The Bank of Thailand's benchmark rate now stands at just 1.25 per cent. Of course, the only for the rates to go is up, though the question is when. Many analysts expect the next round of rate hikes to not come around until the third quarter of 2010. Hopefully by then, the Thai economy will start showing some stability.
Core inflation, on the other hand, remains weak. The latest November figures show that inflation rose just 0.1 per cent year on year and will likely stay well within the 0-3.5 per cent quarterly average range the central bank is aiming for. Also, in its latest inflation report for October, the Bangkok of Thailand said the risk of a property market bubble appeared low. Unlike in other Asian countries such as South Korea, China and Hong Kong where the governments are concerned about asset price bubbles, and may have to move on monetary policy, Thailand does not seem to have any immediate impetus for a monetary policy normalisation.
The Thai economy should end up with a minus 3.5 per cent growth rate this year, though it does not appear as if the situation is entirely bad. This may be explained by the dual-track nature of the Thai economy. On one track, it is highly exposed to the export market, which accounts for 60 to 70 per cent of its gross domestic product, on the other track, it has a large domestic market with demands that will keep humming along. Companies doing business overseas might suffer, though most of their counterparts focusing on the domestic market will be doing fine. This is why we haven't been feeling the pain of a negative growth economy.
Many now predict a V-shaped recovery and expect the Thai economy to post a 3 per cent growth next year at the least. However, this assumption hinges upon the stabilisation of the financial markets and the recovery of major economies. On this front, the road ahead remains bumpy. There are risks that many countries might default on their debts.
The United States, United Kingdom and Japan are having a tough time managing their fiscal woes, destroyed by numerous bailouts and stimulus spendings. China is thought to be a knight in shining armour, who might just save the world and Asia. However, China's GDP of less than $4 trillion will not be able to pull the globe out of its sluggishness. Even worse, there are chances that China can run into an asset bubble, forcing the authorities to jam a brake on bank lending and pull back on liquidity.
In that event, all Thailand can do is create a strategy to shield itself from the turbulent world, because at the end of the day, we only have ourselves to rely upon.