Bank of Thailand warns of long-term recession

Competitiveness faces obstacles

Thailand's export sector has lost competitiveness in global markets, with the market share of rice shipments declining by more than 50% over the past 20 years, according to the Bank of Thailand (BoT). The central bank notes that long-term structural impediments in the export and manufacturing sector are having a more pronounced impact on the Thai economy. The report notes that more than 70 percent of products that influenced export value growth last year are experiencing deteriorating competitiveness and other structural difficulties. Agricultural products such as rice report a decline in market share from 25% in 2003 to 13% currently, according to redacted minutes of the Bank of Thailand's Monetary Policy Committee (MPC) meeting on Feb. 2 and Feb. 7 released Wednesday. Petrochemicals are suffering from China's double-circularity strategy, and hard disk drives are being replaced by solid-state disks that Thai manufacturers are unable to produce, the report notes. Thailand's average annual growth in electronics exports has been just 4% over the past ten years, far below regional partners such as Vietnam, the Philippines and Malaysia, which reported export growth of 37%, 14% and 10% respectively. Moreover, the production of goods for the domestic market has also begun to face stronger competition from imports. The share of imports from China increased from 5% to 9% over the same period.

At the last MPC meeting, the MPC voted 5-2 in favor of keeping the interest rate at 2.5%. Two committee members voted in favor of lowering the rate by a quarter percentage point. In addition, the MPC stated that the current loan-to-value (LTV) measures remain adequate. Some real estate developers have recently requested the Ministry of Finance to relax the LTV measures to stimulate activity in the sector. However, the MPC has decided that the current LTV measures continue to ensure housing affordability for the vast majority of the population as 90% of buyers are not restricted by these criteria and can obtain loans for 100% of the property value with no down payment. Current LTV rates in Thailand are 90-100% for primary residences, which is flexible compared to countries such as South Korea, Singapore and New Zealand where they are 50-70%, 75 and 80% respectively. Activity in the housing market continues to increase, with more property sales and transfers. Deliveries are also increasing, with more new residential property coming on stream, MPC said. An improvement in the Real Estate Business Confidence Index indicates steady growth.

"The relaxation of LTV measures could lead to risks to financial stability through increased speculation in the real estate market, leading to price increases in some segments and overpricing of buyers. Ongoing debt separation process may be disrupted, implying vulnerability of the financial system in the long term," the MPC report said.