The Thai baht turned volatile yesterday against the greenback after the National Economic and Social Development Council reported a five-year low economic growth in the second quarter due to weak domestic demand and sluggish exports. The institution also downgraded the 2019 growth outlook of Thailand. Interestingly, despite the bad news, the USD/THB pair declined from 30.92 to 30.82 in the past 24 hours.
Thailand recorded a 2.3% GDP growth in the second quarter of 2019, down from 2.8% in the previous quarter. The reported figure represents the slowest rate of growth since the third quarter of 2014 but in line with economists’ expectations.
On a q-o-q basis, the economy expanded by 0.6% in Q2 2019, after a growth of 1% in the previous quarter. Going forward, the institution now expects the economy to grow between 2.7% and 3.2%, compared with the prior range of 3.3% to 3.8% issued in May. Likewise, exports are anticipated to contract 1.2%, instead of the 2.2% growth forecast earlier.
Prakash Sakpal, an economist at ING, stated that favorable base effects and likely monetary and fiscal stimulus might aid some recovery in the last two quarters of 2019, but the economy will still struggle to exceed 3% GDP growth.
Gareth Leather, an economist at Capital Economics, opined that slowing global demand and decline in the tourism industry would act as a headwind in the next two quarters. Leather believes that the economy will remain weak for the rest of the year.
More importantly, Leather believes that even the downwardly revised GDP growth may be challenging to achieve.
The National Economic and Social Development Council stated that private spending increased 4.4% y-o-y in the second quarter, after posting 4.9% rise in the previous quarter. Government final consumption growth fell to 1.1%, from 3.4%. During the same period, domestic investment increased 2%, compared with 3.2% in Q2 2019. Exports and imports of products and services declined 6.1% and 2.7%, respectively, in the second quarter of 2019. The US-China trade dispute and stronger currency had a negative impact on exports and imports.
The economic data and FY19 GDP growth forecast indicate that the USD/THB pair will turn bullish in the short-term.
Contrastingly, the historical price chart indicates that the USD/THB pair has broken below the support level of 30.86. The MACD indicator has a negative reading. However, it has formed a divergence with the price. As a result, we can expect the currency pair to slowly reverse trend in the days to come. So, it is wise to take long at support levels.
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