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13 Aug 2015

International Economy

Yuan Devaluation: Immediate Impact on Thailand is Limited, but Economic Developments in China Warrant Close Monitoring Ahead (Current Issue No. 2649 Full Ed.)

Although China's decision to devalue the Yuan (CNY) early this week did not surprise the market, the move represents a new stance in China's exchange rate policy, wherein they are making the CNY reference rate more consistent with market trends. It also signals that China could be keeping its currency value low over the long term amid a strengthening US Dollar as a result of an anticipated Fed Funds rate hike and US economic recovery. China's new exchange rate stance reflects its need to use the Yuan as a tool to shore up the economy and exports, given that recent monetary and fiscal policies have not achieved the desired effect.
The impact of the CNY devaluation on Thailand may be felt in exports and tourism because China is an important market for us. If the Chinese currency does not fall further, those two sectors should not be more severely threatened.
We at KResearch cautiously expect that the value of Thai exports to China during 2015 will shrink (-)5.5 to (-)3.2 percent YoY, versus a contraction of (-)1.0 percent projected by us previously. In tourism, we still hold a view that Chinese tourist arrivals to Thailand will continue to grow over the remainder of 2015, given that they continue to come unabated despite Chinese stock market corrections, mid-June and July, while that the latest CNY devaluation was smaller than the Baht/US Dollar forex drop in recent months. Throughout 2015, KResearch expects that Chinese tourist arrivals here will reach perhaps 7.24 million, increasing 56.1 percent YoY, versus a contraction of (-)0.3 percent reported for 2014.

The outlook for the CNY will hinge upon Chinese economic data. Unexpectedly weak data may cause it to decline further as the Fed undertakes normalization of its key policy rate. In this case, the effects on Thai exports and tourism, being heavily dependent upon China, might then become more pronounced.

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International Economy