Bank of America has issued a significant revision to its forecast for the Thai baht (USD/THB), citing persistent pressures from global oil market volatility and a weaker-than-expected recovery in Thailand's crucial tourism sector. The financial institution's Global Research team announced the revised projection, which anticipates different exchange rate movements through 2025.
The revision is driven by two primary factors: First, global oil price shocks continue to affect Thailand's import costs, as the country imports nearly all its petroleum needs. Bank of America notes that every $10 increase in oil prices widens Thailand's current account deficit by about 0.5% of GDP. Second, tourism recovery remains sluggish, with arrivals still lagging 2019 levels by approximately 15%. Chinese tourist arrivals, which once constituted nearly 30% of international visitors, now represent only about 15%.
This creates a complex challenge for the Bank of Thailand, which must balance inflation concerns with supporting economic growth. The tourism sector normally contributes about 20% to Thailand's GDP, and its weakness has broad economic impacts, including lower occupancy rates for hospitality businesses and reduced retail spending.
Separately, Deutsche Bank analysis warns of mounting risks for Asian currencies amid a global landscape where the US dollar continues to receive significant war-driven support. Geopolitical conflicts in Eastern Europe and the Middle East have triggered traditional safe-haven flows toward the dollar, while also disrupting global energy markets. This reinforces the dollar's dominant role and creates vulnerabilities for export-dependent Asian economies.
Deutsche Bank highlights that many Asian economies, like Thailand, rely heavily on imported energy, creating balance of payment pressures. The analysis points to capital flow volatility and policy divergence between Asian central banks and the US Federal Reserve as persistent pressures on regional currency valuations.
Bank of America's revision aligns with a broader consensus, as other institutions like Goldman Sachs and Morgan Stanley have also recently adjusted their Thailand GDP and currency expectations downward. Financial markets have responded, with tourism-related stocks underperforming broader indices and government bond yields showing modest increases.
