Trade war biggest economic risk for Thai central bank

Bloomberg

President Donald Trump’s trade policy has Thailand worried. Trade and geopolitics are the key risks for Southeast Asia’s second-largest economy, Bank of Thailand Senior Director Don Nakornthab said in an interview in Bangkok. Exports of goods and services account for about 70 percent of Thai gross domestic product.
“Trade politics is the most important risk for our economy as it can evolve into trade war,” Don said. “If there’s an external shock in the near future, our economy may face a difficult time.”
Trump’s plan to impose tariffs on steel and aluminum imports roiled markets as investors weighed the possibility of escalating trade confrontations. Thailand could face greater US scrutiny after its trade surplus with the world’s biggest economy exceeded $20 billion last year. Thailand has been lucky to be able to “rely on external demand while we wait for local demand to gain more strength,” Don said. The economy is in the early stages of an upswing and expansion in 2018 could be higher than last year.
GDP advanced 3.9 percent in 2017, lagging peers in Southeast Asia. Vietnam and the Philippines posted growth rates exceeding 6 percent. Thai inflation pressure is muted and most economists predict the monetary authority this year will hold the benchmark rate at 1.5 percent, near a record low.
The overall picture is that the country still needs accommodative monetary policy to facilitate economic expansion and bring inflation back to target, Don said.
“Just for the sake of financial stability, we should have raised the rate,” he said. “But we need to look at economic growth and inflation too. The central bank looks at the strength of domestic demand, which remains relatively weak compared to external demand. If it’s getting stronger to a certain level, it can be a factor supporting a rate hike.”