It has been projected that the European Union (EU) and Eurozone economies will achieve 1.7 percent growth in 2010, boosted by recoveries seen in the EU's four largest economies, i.e., Germany, France, UK and Italy. It has also been forecast that this pace will continue into 2011 as well, wherein several nations – Hungary, Romania and Bulgaria – should begin to help drive the EU out of the recession; thereafter, growth should be more favorable.
However, the Eurozone may register slower growth than the encompassing EU in 2011 due to a high base from last year and a host of downside risks, including high public debt within Portugal, Italy, Ireland, Greece and Spain – especially Ireland and Portugal – that may erode investor confidence and drive up capital mobilization costs for many governments. These problems will likely be compounded by efforts to tighten state expenditures, specifically those for social welfare programs that may exacerbate their unemployment dilemma, thus further undermining their economic recoveries in the near-term.
In addition, production within Europe will likely remain fragile, as manufacturers have been trying to use up their remaining stock so that they may not need to replenish inventories. As a result, our exports to Europe will probably slow further next year. Also, the relentless rise of the Baht will erode our pricing competitiveness and inhibit exporters' earnings in Thai currency.
Amid this, KResearch expects that Thai exports to the EU may grow 12-15 percent in 2010, thereafter declining to 6-10 percent growth in 2011. Many of our export categories, especially intermediate goods and consumer products, will be among the casualties. As a result, Thai exporters are advised to monitor economic trends in Europe and Baht movements closely to pre-empt any forex risks.
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