2012 Exports Growing 3.12%...Higher 2013 Export Growth Likely amid Lofty Production Costs and Strong Baht (Business Brief No.3403 Full Ed.)

Although Thai export volume expanded for the fourth straight month in December 2012 at 13.45 percent YoY, the export value reached only USD18.1 billion, down 7.44 percent MoM, due mainly to a decline in the value of our agricultural exports. As a result, our full-year exports grew only 3.12 percent YoY to USD229.5 billion, inhibited by numerous risks.

However, we at KResearch are of the view that steady improvements seen in the economic indicators of leading nations, along with signs of gradual recovery in the Chinese economy and elsewhere in Asia, plus easing concern toward economic malaise in the Western Hemisphere in 4Q12 should help support our outward trade this year. With a rebound expected to begin in 1Q13, and a full recovery within 2H13, we expect that Thai exports should expand perhaps 10.0-15.0 percent YoY this year.

However, we need to be vigilant toward risks that may delay that recovery within certain export categories, due to lofty production costs and the Baht's appreciation that may put some of our labor-intensive exports that have already lost competitiveness into jeopardy. Some categories, e.g., automobiles/parts, refined petroleum products, petrochemicals, plastics, construction materials, iron ore and iron products should still be able to overcome those risks and grow in line with increased international orders and higher production capacities here.

Meanwhile, rising domestic production costs will likely be offset by lower import costs on intermediate components (as production factors) resulting from the stronger Baht, thus helping sustain our export pricing competitiveness. Exports of raw rubber, rubber and cassava products will continue to be supported by strong demand in global markets, while limited supplies should drive up their prices and export volumes, thus helping absorb rising production costs.

While our processed food exports have also been adversely affected by rising production costs and the surging Baht, we expect that they will continue to thrive because their quality is superior to many rivals amid growing demand in Asian markets. Likewise, our exports of electronic and computer-related components will benefit from lower import costs of some components due to the stronger Baht, though clear recovery signs have not yet emerged, meaning that they may remain competitive in the near term.

Other than those risks, KResearch expects that the unresolved islands dispute among China, Japan and South Korea, coupled with inflexible foreign policy stance of their new administrations may intensify such conflict to an extent that will hurt regional trade. If so, that will inevitably affect Thailand as Asia's major exporting country.