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Thailand and Malaysia have enjoyed years of consistent current account (CA) surpluses pre-pandemic, but the situation changed vastly for Thailand. Thailand’s current account surplus flipped into a deficit of 2.2% of GDP in 2021, its first annual deficit since 2013. We expect Thailand’s deficit to narrow in 2022 but remain challenged by a partial tourism recovery and elevated oil prices.  Malaysia’s surplus has stayed broadly intact through the pandemic (2021: 3.5% of GDP; 2020: 4.2%), and is likely to remain strong, helped by high energy prices and tourism restart.

Thailand: geopolitics challenge tourism, trade

The shift in Thailand’s services account (notably travel and transport) to a deep deficit from a surplus drove the shift to a current account deficit. We think that the foreign tourism revival is a key factor driving the external balance improvement going forward. Thai policymakers have relaxed international border restrictions and are welcoming the return of foreign tourists via various schemes, including the ‘Test and Go’ scheme and various sandbox programmes in late-2021, which drove a narrower services deficit in 4Q21. We think that foreign visitor arrivals will recover in 2022, but only partially, given challenges faced from the ongoing Russian-Ukraine conflict and China’s zero-COVID policy.

Thailand’s goods trade surplus, which supported the current account over 2020 and 2021, is increasingly pressured by an expanding net oil trade deficit amid multi-year high global oil prices and the country’s high oil import dependency. Elevated oil prices however if prolonged by geopolitics will likely limit the external balance’s recovery in 2022.

Malaysia: poised to gain from high oil prices

Malaysia’s strong current account surplus was supported by a strengthening goods trade surplus during the pandemic, and a wider services deficit during the period was insufficient to significantly hurt its robust position. We expect Malaysia’s current account surplus to be supported by two factors over the coming quarters. First, Malaysia’s position as a net oil and gas (o&g) exporter in the region, unlike Thailand, will allow it to benefit from high global energy prices. Second, Malaysia’ services deficit, which widened to almost 4% of GDP over the past two years (versus an average deficit of 1.2% from 2017-19), is likely to narrow gradually, as it benefits from international border reopening progress over the coming quarters.

FX: MYR is a more stable currency to hold than the THB amidst global uncertainties

MYR and THB have been broadly stable since mid-2021. However, the MYR’s range is narrower at 2.5% between 4.14 and 4.24 per USD while the THB is wider at more than 5% between 32 and 34 per USD. The higher THB volatility is attributed to Thailand’s vulnerability to COVID-19 due to its economic dependence on tourism.

When Thailand started to re-allow fully and partially vaccinated foreigners from 1 February (after suspending it temporarily in January due to the Omicron wave), THB appreciated against MYR by pulling back from weaker levels against the USD. Thailand is looking for COVID-19 to be endemic by July. From 1 April, Malaysia will reopen its borders and start transitioning to the endemic phase.

MYR is more resilient than THB to Fed hikes. Our chief economist expects five increases in the Fed Funds Rate from 0.25% to 1.50% between March and 3Q22. We see Bank Negara Malaysia maintaining a positive policy rate differential with the US via two hikes in 2H22 from 1.75% to 2.25%. Conversely, we see the Bank of Thailand holding rates at 0.50% throughout the year, turning the positive policy differential into a widening negative differential this year. That said, the 10Y bond yields of Malaysia and Thailand were, as of 8 March, still high at 3.66% and 2.13%, respectively, compared to the 1.85% offered by their US counterpart.  

MYR has been more resilient than THB to the Russian invasion of Ukraine. Rising oil prices benefit the MYR but weigh on the THB. Malaysia is a net oil exporter with a current account surplus. On the other hand, Thailand is at the opposite end with a sizeable oil trade deficit keeping its current account in deficit. Thai inflation is also more sensitive to rising energy and agricultural commodity prices. Thai consumer inflation recently overtook Malaysia and was well above its 1% to 3% target range.

Unsurprisingly, the Malaysian government is sticking to its 5.5% to 6.5% growth target this year while the Thai Finance Ministry warned that Thailand might miss its 3.5% to 4.5% growth target. The odds are stronger for the THB than the MYR to depreciate out of its multi-month range.

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