topic analyze the determinants of the current account and exchange rate in 2023 for thailand

The current account represents the balance of trade m goods and services, net mcome, and net transfers between a country and the rest of the world over a specific period, typically a yea

COLLEGE OF BUSINESS SCHOOL OF FINANCE

UEH

GROUP ASSIGNMENT

Topic: Analyze the determinants of the current account

UNIVERSITY and exchange rate in 2023 for Thailand

Course: International Finance Instructor: Le Thi Hong Minh Class: 24D 1FIN50504006

Practice group: Group 6

Pham Ngoc Thao Quyen - 31221025706 Đo Quynh Lan - 31221027033

Thị Nguyen Bao - 31221021090 Trinh Duc Thinh - 31221023639 Ho Chi Minh, May 9, 2024

CONTRIBUTION

1 2 3 1

Table of Contents

Trade in Goods

Trade in Services Primary Income and Secondary Income:

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1 Introduction computer

interactions with the global economy The current account represents the balance of trade m goods and services, net mcome, and net transfers between a country and the rest of the world over a specific period, typically a year It provides insights into a nation’s competitiveness in international trade, its reliance on foreign capital, and its ability to sustain economic growth A surplus in the current account indicates that a country is exporting more goods and services than it imports, while a deficit suggests the opposite On the other hand, the exchange rate refers to the price of one currency in terms of another It determines the value of a nation's currency relative to foreign currencies and influences the cost of imports and exports, capital flows, and ultimately, a country's external competitiveness Exchange rates can be determined by market forces in floating exchange rate regimes or managed by central banks in fixed or pegged exchange rate systems

In conclusion, the current account and exchange rate are integral components of a

country's economic landscape, reflecting its trade dynamics, investment patterns, and external

vulnerabilities In this essay, our group will analyze the determinants of the current account and exchange rate in 2023 for Thailand Understanding these determinants is essential for policymakers, businesses, and investors to navigate the complexities of Thailand's economy and its interactions with the international market

Thailand's economy is still absorbing moisture, it is presented, beset by low productivity

and slow growth One of the internal factors adversely affecting the economy is Thailand's

significant political instability In addition, the difficult state of the world economy in 2023 has had a negative impact on international trade, especially on Thailand's international trade activities In 2023, Thailand grew at 1.9% (data released on February 19, 2024, by the Thai government) This increase is slower than the 2.5% growth recorded in 2022 due to weak

exports

1 Trade in Goods For the whole year 2023, Thailand’s imports decreased by 3.8% while exports

decreased by 1%, creating a trade deficit of 5.2 billion USD

4.5K 3K

= — - E— L— 0

-1.5K

-3K 2023 Mar May Jul Sep Nov

Bank of Thailand Value Chg Chg%

EXPORT In November 2023, Thailand's Ministry of Commerce said that the country's customs exports is 4.9% increase

Exports decrease slightly: Thailand's export turnover of goods in 2023 decreases by 1%

compared to 2022, reaching 382.5 billion USD

Some key export products grow: - Agricultural: up to 4.2% - Rice: Rice exports increase by 13.7% compared to 2022, reaching 8.76 million tons - Cars and spare parts: Exports of cars and spare parts increase by 4.2% compared to 2022 - Electronics: Electronics exports increase by 3.4% compared to 2022

Reasons:

Weakened global demand: Weakened global demand due to the Russia-Ukraine war disrupting supply chains and increasing energy, creating increased production and transportation costs

High prices and tight monetary policies of developed countries have extremely affected Thailand's exports In 2023, inflation is below 1% and real wages continue to be low

The value of the Thai BAHT increases: The value of the Thai BAHT increases compared to the USD for most of 2023, making Thai exports become redder in the international market

IMPORT

In December 12, Thailand's import turnover decreased by 2023% over the same period last year, creating a trade surplus of 3,1 billion USD

Imports decrease: Thailand's import turnover of goods in 2023 decreases by 3.8% compared to 2022, reaching 427.7 billion USD

Some key imported products decreased: - Gold: Gold imports decrease by 22.7% compared to 2022 - Crude oil: Crude oil imports decrease by 5.3% compared to 2022 - Machinery and equipment: Imports of machinery and equipment decrease by 4.9%

2 Trade in Services

Over-reliance on tourism increases Thailand's vulnerability to external shocks and

could weigh on growth in the medium term Tourism is an important driver of the Thai economy,

accounting for 20% of GDP in 2019, including both indirect and induced contributions

After being hit hard by the COVID-19 pandemic in 2021 and 2022, Thailand's trade services industry began to recover in 2023 Thailand's export services also showed signs of

growth in 2023, thanks to the recovery of industries such as health services, education and

information technology The tourism industry, one of the main pillars of Thailand's service trade industry, has recorded strong growth in 2023 The number of international tourists to Thailand in 2023 reached more than 28 million customers, much higher than the number of 8.37 million people in 2022 The revenue that Thailand earns from tourist spending generates more than 1,000 billion BAHT (28.7 billion USD)

Thailand's success is thanks to its investment in tourism promotion of 3.35 billion BAHT (93 million USD) with policies that create opportunities to attract tourists: increasing visa length of stay, investing in infrastructure; easy traffic,

3 Primary Income and Secondary Income:

4Q Year 1Q 2Q 3Q 4Q Year

= Tu -254 | -1436 | -2,25 419 | -330 | -1,96 -117

Income

Secondary Income 2,60 9,03 2,66 241 228 2/48 9,84

Unit: Millions of US Dollars

Thailand has a negative primary income balance, meaning they pay more to foreign countries than they earn from them in terms of jobs and investments This deficit has improved slightly compared to 2022 but remains negative at -11.7 million USD The main culprit is likely higher investment income earned by foreign investors in Thailand

Secondary Income reflects income earned outside of primary sources like jobs Examples include

remittances from Thais working abroad, interest from foreign investments, Thailand's secondary income has seen a positive trend, with a record high of 9.84 million USD in 2023

compared to 2022 (9.03 million USD) This indicates residents are receiving more money from abroad than they are sending out

Overall, while Thailand loses money on primary income due to foreign investment, they are making gains on secondary income, particularly from remittances This suggests a mixed picture: Thailand attracts foreign investment but might not be capturing as much return on those

investments compared to what they pay out On the other hand, Thais working abroad are

sending more money back home, boosting the secondary income

In short, a higher deficit in primary income than secondary income that leads to a decline in Thailand’s current account

Il Determinants of Exchange Rate

In 2023, the world commodity market will be very volatile and influenced by economic,

political, and social factors The Russian-Ukrainian military conflict continues along with rising instability in the Middle East Many countries maintain tightened monetary policies, weakened

overall demand, slow economic growth, while monetary financial markets, real estate in some

countries, are potentially risky Extreme weather conditions occurring in many places, prolonged

droughts on a wide scale, floods, natural disasters in countries that make food production and

consumption unbalanced Global inflation from the beginning of the year has tended to decline as countries raise interest rates to contain inflation along with falling energy prices But compared to the long-term target, the current level of inflation remains high for many countries The Baht is fluctuating more strongly than the currencies of its neighbours and even many other

countries in Asia According to the Central Bank of Thailand, the factors that influence this

volatility are mainly external, accounting for about 60-70% These include monetary policy, global economic trends, as well as specific factors in Thailand, such as high-level domestic gold trading and political instability caused by the ongoing government formation

1 Monetary Policy:

In 2023, major economies have witnessed new shifts in monetary policy operations, highlighted

by countries’ continuously raising interest rates to contain inflation The main causes of rising

inflation come from factors such as rising energy prices, supply chain disruptions, and economic instability due to Brexit, the Russian-Ukrainian conflict, Israel-Hamas and the consequences of the Covid-19 pandemic To cope with these economic turbulences, nations have to work hard to pursue appropriate monetary policies, including some prominent countries such as the UK, the US, the EU as well as countries in Asia in general and the ASEAN region in particular

U.S Dollar to Thai Baht: 34.5867 »

3 4

3

Feb'23 Mar"2 Apr ‘23 May ‘23 Jun '23 Jul '23 Aug '2 Sep '2 Oct '23 Nov '23] Friday, Dec 29, 2023

According to the Central Bank of Thailand, as of the beginning of the year, the country's baht has lost nearly 4% against the dollar and is currently at 34.58 baht for a dollar — the lowest level in the year It is an economy that relies heavily on exports of goods and

services, dependent on tourism, and the reduction in the Baht makes Thai goods more

competitive, attracting more tourists However, a weak domestic currency can pull up inflation, imports become so expensive, weakening domestic consumption

According to the Thai Economic and Social Development Council (NESDC), Thailand's economy has slowed down this year, with GDP growth reaching only 1.9% in the nine months since the beginning of 2023 In the third quarter, GDP growth dropped to 1.5%

from 1.8% in the second quarter In addition, industrial production fell in the third

quarter Thailand's GDP is expected to grow by 2.5 percent this year from 2.6 percent last year, while inflation is projected to remain at 1.4 percent, and the balance of future accounts is anticipated to exceed 1 percent of GDP

a) Inflation:

While countries like China and Japan maintain easing policies to support growth, in the ASEAN region, economies such as Thailand adopt tighter measures to control inflation The Asian Central Bank's priority now is to support economic growth and post-epidemic

recovery soon However, priority levels for inflation control targets vary from country to

country Compared to big economies focusing on curbing inflation, Asian countries tend to prioritize supporting growth

The BOT predicts headline inflation of 1.3% this year, versus 1.6% projected earlier, while 2024 inflation was seen at 2.0%, not factoring in the impact of digital wallet spending, compared with 2.6% projected earlier The BOT targets headline inflation in a range of 1% to 3%,

b) Interest rate and economic growth

The BOT's monetary policy committee finished a year-long tightening cycle with a unanimous decision, maintaining its one-day repurchase rate at 2.50%, the highest in a decade, after raising rates by 200 basis points since August 2022 to control inflation

2.20 2.00

1.80

1.60

2.8% previously, and for 2024 to 3.2% from 4.4% The economy grew 2.6% in 2022

With inflation low and the economy likely to disappoint, policy cuts are expected in the second

half of next year 2 Political stability:

In 2023, nearly three months after the May 14 general elections, Thailand's unclear political future has weighed on the economy, possibly postponing government

expenditure, which is critical to the country's post-Covid recovery

This is a result of the House alliance led by Move Forward growing, which raises the likelihood that the party's nominee will prevail in the election However, as long as Prime Minister Prayut Chan-o-cha has a chance to win, Thailand's political system hasn't

collapsed Political unrest causes investment fear in this nation, the Baht depreciates,

As a result, investors will often take their money back and put it in safer investments, which will cause a deficit and have a significant effect on the Thai economy

The business sector has expressed concerns about the delayed pace of building a new government and selecting a prime minister, raising fears that the political gridlock could erode investor confidence at a time when the economy requires more foreign direct investment

a) Government Stability:

Political stability and a functioning government are critical to economic growth and investor confidence If Thailand sees frequent government transitions, coalition conflicts,

or leadership instability, investors may get concerned Such uncertainty may cause a loss

of trust in the economy, leading to capital flight and a depreciation of the Thai baht

b) Policy Uncertainty:

Unpredictability in policy-making is frequently caused by political uncertainty Investors may become wary if many political factions have divergent policy agendas or if it's unclear what the future holds for the economy Indecisive policies have the potential to discourage foreign investment, negatively impact economic growth, and ultimately increase pressure on the currency rate

c) Political Unrest and Protests:

Large-scale demonstrations and civil disturbances have the potential to sabotage business operations and undermine investor trust Protests have the potential to cause infrastructural destruction, commercial operations interruptions, and unstable governments Such incidents have the potential to frighten investors and cause them to

sell their holdings, which would lower the Thai baht's value Policy Reaction:

The exchange rate may also be impacted by the way the government handles political difficulties Efficient and timely policy responses to economic or political unrest could calm investors and keep the currency stable On the other hand, the government may intensify unfavorable market reactions and devalue the currency if it ignores political issues or reacts in a way that heightens tensions

After analyzing and evaluating the factors influencing Thailand's current account and exchange rate in 2023, our essay reveals that these determinants play a significant role in shaping the future of the current account and are subject to the influence of the global economic landscape and governmental policies In 2023, a surplus in Thailand's current account, a

significant improvement from the -15,7 million USD deficit in the previous year to 7,00 million

USD which was supported by the recovery of the tourism industry post-pandemic, leading to increased revenue from services which had a positive impact on the current account balance Thailand continues to experience a deficit in its income balance, indicating a slight alteration in the numerical values

On the other hand, exchange rates experience fluctuations throughout 2023 due to various factors The fluctuating exchange rates can be attributed to government policies and global monetary policy The lower inflation rate in comparison to other nations has led to the depreciation of the Thai Baht Concerns about the devolution due to low inflation and a sudden

increase in Thai interest rates to overcome currency devaluation have reflected negatively on the exchange rate Political instability, which has raised investment worries, has further contributed

to the devaluation of the Thai Baht Consequently, this is anticipated to result in a deficit and