Fears about Escalating Debt Crises likely Dampening USA and EU Economies: Impact on Thai Economy & Exports (Business Brief No.3155)

Given the global economic situation, the US economic deceleration is apparently seen as signaled by many several indicators, e.g., on consumption, employment and manufacturing amid budget cuts due to US debt ceiling compromises. This condition may inhibit US economic growth further. Based on the review by credit rating agencies, the United States’ AAA sovereign credit rating is under threat of downgrading. Aside from PIGS debt crisis, the market also focuses on the economies of Italy and Spain – the third and fourth largest economies in the Eurozone – due to concerns about their debt servicing ability, thus increasing their bond yields dramatically. Amid concerns that the US and Eurozone economies may fall into a double-dip recession, KResearch expects that such condition could directly affect some Thai industries highly dependent on the US and Eurozone markets. The most affected industries (with over 40-percent dependency on US and Eurozone markets) will likely include garments, tableware, shoes, furniture, facsimile machines, telephones and parts. Despite a high reliance on those two markets, canned and processed seafood, shrimp and chicken as well as canned and processed fruit may be affected at lesser degree because they are considered necessary goods. In addition, products that may be moderately affected by the new recession should be electric appliances and parts, air-conditioner compressors, rubber products, motorcycles and parts, printed circuit boards, computers and parts, radios, televisions and parts, aircraft parts and equipment, air conditioners and parts, transformers and parts, as well as gems and jewelry. Meanwhile, industries that tend to be slightly affected may include farm produce, automobiles and parts, chemical products and plastic pellets. However, if US and Eurozone economies – accounting for over 40 percent of the global economy – plunge into double-dip recessions, other regions are expected to be affected accordingly, thus possibly leading to global economic deceleration. As a result, Thai exports in 2012 may significantly fall below KResearch’s forecast of 12.0-17.0 percent. In our worst-case scenario, Thai export growth may report the contraction as seen during the previous US economic crisis. Nevertheless, the overall situation may depend on other relevant factors, such as the Asian economic trend and commodity prices. During US economic crisis, the Thai economy normally decelerates dramatically or even contracts accordingly. In our best-case scenario where the Chinese and other Asian economies continue to grow moderately and the Thai government resorts to efficient measures to strongly stimulate the domestic economy, the Thai economy may achieve the relatively low growth level of not over two percent. Amid uncertainty in the global economy and currency exchange rate fluctuations, businesses, then, should be cautious in their forex management.