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China seen as keeping Thai inflation low

China seen as keeping Thai inflation low

Thailand’s inflation rate is currently not a significant concern, as the country is being affected by what the chairman of the state planning agency describes as “exported deflation” from China. In a keynote address at the National Economic and Social Development Council (NESDC) annual seminar themed “Geopolitical Uncertainty: Navigating The Future,” Supavud Saicheua stated that as a small nation, Thailand is inevitably impacted by geopolitical issues.

Mr. Supavud elaborated that China, as a major global economic power, is restructuring its economy to focus on high-tech production following the collapse of its real estate bubble, without governmental intervention. He observed that China’s low domestic consumption, at just 0.5%, is contributing to a global oversupply of goods, particularly affecting Thailand as China produces a significant volume for worldwide markets. With a consumption-to-GDP ratio of only 24%, China’s products are flooding partner countries, while Western nations impose restrictions on these imports.

“Exporting deflation” refers to when a country experiences a drop in domestic prices that subsequently impacts other economies through trade. This phenomenon is notably evident in larger economies like China, where domestic deflationary trends can resonate significantly across the globe.

Deflation is characterized by a general decline in prices for goods and services, often linked to a decrease in the money supply or credit in an economy, which in turn boosts the purchasing power of the currency. This means consumers can buy more with the same amount of money over time.

Mr. Supavud suggested that Thailand could position itself as a bridge for Chinese goods, akin to how Hungary serves as a gateway for Chinese products entering Europe. He pointed out that China cannot produce sufficient food for its population, which makes up 20% of the world’s total, while only 9% of its land is arable. This situation presents a significant opportunity for Thailand, a leading producer and the fourth-largest exporter of agricultural products to China. With China’s aging population, agricultural production is likely to further decline.

On the topic of the upcoming US elections, Mr. Supavud noted that regardless of the outcome, Thailand will be impacted. If Donald Trump is re-elected, protectionist measures may intensify. He highlighted the US’s substantial budget deficit, estimated to be around 6% of GDP, predicting that public debt could soar from $28 trillion to $50 trillion over the next decade. Consequently, long-term interest rates in the US are expected to remain elevated at 3-4%, potentially even reaching 5%, despite short-term rates decreasing.

Overall, regardless of which candidate wins the competition between the US and China, Mr. Supavud advised that Thailand should continue to foster relationships with both nations to secure its optimal position.

Danucha Pichayanan, secretary-general of the NESDC, remarked that the geopolitical challenges Thailand faces should be reframed as opportunities to attract foreign investment. This can help transition the country into a high-value economy by leveraging advanced technologies and bringing in skilled labor for accelerated development. He emphasized that enhancing energy security is vital for establishing Thailand as the energy hub of the region.

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