Global Economic Outlook, 2007: Impacts on Thai Exports(Current Issue No.1913)

The US economic slowdown, as evidenced by their GDP growth of only 1.6 percent in Q3/2006 – the slowest quarterly growth in more than three years – has led to the expectation that the US economy may continue in weakness into the year to come. In 2007, the US economy is expected to post a growth of 2.9 percent, against the growth of some 3.4 percent for this year. Likewise, other major economies, i.e., the European Union (EU) and Japan are also poised to see sluggishness next year. Thus, the global economy is likely to slow to 4.9 percent in 2007, against the growth of 5.1 percent in 2006.

The economic slowdowns in the US, EU and Japan – which are Thailand's key trade partners – in the coming year are expected to adversely affect the major Thai export categories as summarized in the following:

Group 1: Export items likely to be greatly impacted Products in this category are those exported to the US, EU and Japan, which account for more than half of the export value of each item. These include gems and jewelry, radios, TVs and parts thereof, garments, canned and processed seafood as well as electrical appliances and other parts. If imports to the three established markets decelerate, Thailand's overall exports are set to greatly suffer.

Group 2: Export items likely to be moderately affected Among these items are goods shipped to the three key markets, which make up around 30-40 percent of the export value of each item. These would be computers, parts and accessories; integrated circuits; rubber; iron-steel and products; rubber products; machinery and parts thereof; air-conditioners and parts thereof; plastic products and internal combustion piston engines. In the midst of slowing in the US, EU and Japanese economies, these products are likely to be moderately affected, given that other markets like ASEAN, China, the Middle East and Australia can help offset export losses.

Group 3: Export items likely to be marginally affected Products in this group are products which marginally depend on exports to the US, EU and Japan in proportions of 10-25 percent of the total export performance in each category such as cars, accessories and its parts; plastic resin, refined oil, chemicals and rice, because Thailand distributes such products to other markets more than we do to the three primary markets. The ASEAN and China markets are the leaders here. If the economies of the US, EU and Japan get sluggish next year, exports of these products may be only marginally disrupted.

The economies of the leading industrial countries will likely slow in 2007, and this may affect Thai exports. Entrepreneurs, hence, will have to broaden their export markets in order to reduce market risk and the effects of flagging primary markets. Nonetheless, KASIKORN RESEARCH CENTER (KResearch) is of the opinion that the Thai authorities should promote exports to the newer second-ranked markets, such as markets in Southeast Asia, the Middle East, Australia, South Asia, Africa, South America, Eastern Europe, etc. These trade partners are the export markets that show high potential and are becoming more significant because Thai exports to these new markets exhibited a high growth of around 24 percent in the first-nine months of 2006.

Although the economies of major trade partners will likely be sluggish in 2007, it is expected that the effect of this on the overview exports of Thailand will not be that severe at all. Considering the first twenty most important export items to the main markets, the total proportion of these exports to them was around 38 percent, with a value of USD23.202 billion in the first nine months of 2006. Meanwhile, the other export markets dominated the market share, taking approximately 62 percent of the total of those products with a value of USD38.101 billion. As a result, it is expected that other export markets can help support the exports of Thailand. As for the risk of tougher competition from new competitors to Thailand, the Thai authorities and entrepreneurs will have to try to market better and penetrate target groups in the second-ranked markets more aggressively.