2H12 Global Economy Key to Thai Exports and Policy Rate (Business Brief No.3322 Full Ed.)

Thailand's June 2012 exports showed unexpectedly worse performance, resuming a decline at (-)4.2 percent, YoY (after growing 7.7 percent in May). It is certain that the fragile global economy, especially at the end of 2Q12 hampered our exports. The BOT's Monetary Policy Committee (MPC) meeting on July 25 implied that global downside risks would have a greater weighting in their monetary stance. Even though the MPC resolved to keep their policy rate intact at 3.00 percent, as expected, the vote which was not unanimous suggested that the Thai economic risks, especially amid global fragility and slowing domestic momentum will be the main factors affecting Thai monetary policy in the months ahead.

We at KResearch are therefore maintaining our base-case projection for 2012 export growth at 10 percent. However, the sluggish global picture, especially in major economies, as well as slowing Asian performance, may dent our exports in 2H12. We, therefore, have narrowed our 2012 projection on exports to perhaps 7-13 percent, from our previous 7-15 percent forecast. Exports in 2H12 are projected to grow over 15.0 percent YoY, due to the low base of 4Q11, amid catastrophic flooding.

Looking ahead, numerous global risks lie in Eurozone debt crisis, cooling Chinese economy and sustainability of the US economic growth. Should further negative development be unveiled, our export recovery may be derailed, especially amid such challenges as falling competitiveness in certain Thai export items (farm goods and labor-intensive industrial products), plus increasing trade protectionism invoked by trade partners.

As for the Thai key policy rate, KGroup forecasts that it may be kept unchanged at 3.00 percent throughout this year if the Thai economy maintains its growth momentum and there is no marked acceleration in inflation. The MPC is unlikely to adopt a more accommodative stance unless economic risks (at home and abroad) turn drastically worse.