Thailand-Japan Trade, 2005: Thai Exports Derailing

The economic recovery of Japan; the second greatest economic superpower of the world, started in 2002, and became evident in 2003-2004 with economic growths of 2.4 percent and 4.0 percent, respectively. This had ignited the hope that the Japanese economy would return to being an important driving force of the world economy again, while the US and European economies were still facing problems. But finally, the sudden growth of Japan began to wane in the latter half of 2004, with the possibility that their growth rate may drop dramatically in 2005 to only 1.4 percent. Japan�s growth that has dropped dramatically may highly impact exports and the economic growth of Thailand, because Japan is Thailand�s number one trading partner. Therefore, to understand the Japanese economic trend, and the trade direction between the two countries, it is quite important to study the Thai economic trend in 2005.

The latest round of Japanese economic expansion reached its peak in 2004 with economic growth of around 4.0 percent, due to many positive economic factors such as exports of goods and services (increasing 14 percent), private investment (increasing 9.5 percent), products from the industrial sector (increasing 6.1 percent), private consumption (increasing 3.5 percent) and investment in housing construction (increasing 2.3 percent), etc. The improved profits of the business sector boosted the profit of the industrial sector by 5.4 percent between April-June 2004. The expansion of private business helped the unemployment rate in Japan in 2004 to drop to only 4.6 percent from the previous 5.0 percent. Employment for those who had studied an occupational trade, or were university graduates increased significantly in 2004. However, Japan�s economic expansion in 2004 began to send decelerating signals in the last quarter of the year. Manufactures from the industrial sector started to drop in September 2004, then, economic growth started to clearly derail. As the expansion of exports started to feel the impact of slower growth of demand in the world market, and the impact of the steadily stronger Yen, a slowdown developed in electrical appliance, automobile and IT industries, and particularly in semiconductors, e.g., LCD screens, telecommunications equipment and computers.

For 2005, it is forecast that the Japanese economy will be impacted by lowered exports of goods and services where expansion will drop to 2.8 percent, private investment will likely grow only 3.4 percent, and investments of the state sector are still dropping steadily. Moreover, consumption in the private and state sectors are expected to increase only 2.0 percent and 1.1 percent, respectively. Moreover, a survey by the Development Bank of Japan also reveals that private sector investment in industry during fiscal year 2005 (April 2005-March 2006) will drop by 7.6 percent and investment in service sectors, particularly in transportation, retail trade and telecommunications, is also forecast to drop. Apart from these trends, natural disasters caused from typhoons, many landslides and earthquakes in 2004 have also damaged infrastructure worth by as much as 2 trillion Yen, and are expected to impact private consumption in 2005, causing their GDP for 2005 to grow only 1.4 percent.

Last year was Thailand�s golden year in its trade with Japan because Thailand exported goods to Japan worth USD13,543.2 million, increasing over 2003 by 19.2 percent, which was higher than the expansion to the US market that increased some 14.2 percent. In an adverse direction, Thailand imported goods from Japan worth USD22,416 million, representing an increase by 24.0 percent. Comparing Thailand�s international trade in 2004, it was found that the Japanese market accounts for 13.9 percent of all of Thailand�s exports. In imports, Japan is still the major source with an import proportion of 23.6 percent, compared with China and the US as the second and third most important sources for Thailand, whose proportions were only 8.6 percent and 7.6 percent, respectively, of the total import value.

Among major exports that have bright prospects, electrical circuit boards which are the number one export, grew as high as 83 percent in 2004, after growth reaching 131 percent in 2003; this is followed by electrical appliances and parts, which grew 84 percent; lenses grew 74 percent; processed chickens grew 67 percent; radio-television equipment and parts grew 58 percent; aluminum products grew 45 percent; and rubber products grew 42 percent. Moreover, Thailand is also a major exporter of many items to the Japanese market, as it occupies the number one market share for rubber goods and sugar, and the number two slot for refrigerators and freezers, processed seafood, seasoned meats, animal feed and frozen squid, etc.

Regarding imports, important imported goods from Japan comprise capital goods, primary and secondary industrial goods that link with Thai manufacturing industries such as industrial machinery, electrical machines, electrical circuits, iron and steel, automobiles parts, chemical products, metal products and scientific instruments. These eight items occupy an import proportion as high as around 80 percent of all imports from Japan. Thailand�s imports of these items were between 14-40 percent of all imports in 2003 and 18-36 percent in 2004.

In 2005, it is expected that trade between Thailand and Japan will not change dramatically, as Thailand�s exports will comprise electrical appliances and electronics, automobiles and parts, rubber, ready-made foods; and meanwhile imports will focus on machinery, electronic components, automobile parts and chemical products. The trade direction between our two countries is still growing steadily. However, the economies of Japan and in the ASEAN region that are expected to slow will force the trade volume between Thailand and Japan to grow slower than before, particularly exports affected by dropping consumption in Japan. Meanwhile, imports are still growing at a high rate, due to investment for manufacturing expansion by the Thai private sector in 2005, which still needs to import manufacturing elements and capital goods from Japan, particularly machinery. a KRC