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19 Jun 2009

Thai Economy

May Exports (Ex-Gold) Shrank 27.3 Percent, but Rebound Likely in 2H09 (Business Brief No.2537)

The latest international trade data released by the Ministry of Commerce on June 19, 2009 shows that Thai exports in May 2009 were valued at USD 11.656 billion. Although this figure is higher than the USD10.429 billion seen in April, the rate of contraction remains high at 26.6 percent YoY, compared to the contraction of 26.1 percent in April, representing the seventh consecutive month of shrinkage.
May exports, excluding gold shrank 27.3 percent, against the contraction of 26.5 percent in April. Imports in May had also contracted, down 34.7 percent, with a value of USD9.251 billion, dropping from USD9.834 billion in April (which contracted 36.3 percent.). The trade balance in May showed a surplus of USD2.405 billion. During the first-five months of 2009 (5M09), overall exports contracted 22.9 percent and imports contracted 36.8 percent. The trade balance was in surplus of USD10.054 billion, against the deficit of USD812 million in 2008. Overall, the expected export performance in 2009 has been revised downward by the Ministry of Commerce from a range of -3.0 to 0.0 percent YoY to perhaps (a contraction of) -15.0 to -19.0 percent.
In regard to the export trend over the remainder of this year, KASIKORN RESEARCH CENTER (KResearch) projects that exports during June to July will likely post steep contractions of more than 25 percent due to the high base effect of last year. However, it is expected that these contractions will moderate to less than 20 percent before turning into a single-digit contraction in October and perhaps growth during the last-two months of this year.
The most important factor that would help boost Thai exports in 2H09 would be a global economic recovery. Meanwhile, there are many factors that should be monitored closely, such as optimism toward a global recovery and the depreciating trend of the US Dollar that has resulted in a stronger Baht, thus adversely affecting Thai exports.
Other negative factors include commodity prices that might trend higher, outpacing levels consistent with real market demand, thus eroding consumer purchasing power. Other factors deserving close monitoring include decisions in world economies as to whether they should reduce or continue their economic stimuli, and the magnitude of the H1N1 flu outbreak (further mutations of the virus are a concern).
Regarding export expansion strategies, the authorities and the business sector, while waiting for economic recovery in trading partner countries, should implement their own proactive marketing strategies, to cash in on new opportunities arising from economic stimuli in those countries. Although the direct benefits from state procurement programs might be limited because most governments are trying to promote the consumption of domestically produced goods, so those who manufacture raw materials and component parts might be able to sell their wares to end-product producers in such markets.
In addition, entrepreneurs should turn the H1N1 flu crisis into opportunity by selling health care products that can act as a prophylactic to viruses, as well as offering instant foods and other products with home delivery service to their customers. Entrepreneurs should seek new marketing channels that suit the current situation, such as the Internet (e-commerce), because trade partners might be reducing foreign travel to avoid the risk of H1N1 infection and thus need online access to suppliers. Penetration into new markets is another factor that should not be neglected because there are many emerging markets showing satisfactory growth in such markets despite the global economic downturn.
In other guidelines, the government might offer lower loan rates to help enhance liquidity, which is an important problem for the business sector, particularly SMEs. Proactive marketing activities and relevant marketing information should be provided to support Thai exporters.

Given the current situation, KResearch has decided to maintain our projection for Thai export performance in 2009 at -14.5 to -19 percent (contraction), against 15.5 percent growth in 2008.

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