Thailand's manufacturing production and exports during February exhibited a surprising recovery. A positive sign was seen in the industrial sector with a seasonally-adjusted 9.0 percent MoM increase in overall manufacturing output, contracting at a slower pace of (-)3.4 percent YoY. However, post-flood recovery across all sectors of Thai industry continues at varying rates, with a clear rebound seen in automotive production, albeit in contrast to hard-disk drives, electronics and electrical appliances that may need some time to improve.
Thai exports resumed growth of 0.9 percent YoY – or 3.2 percent YoY if gold exports were excluded – representing a quicker recovery than what had been assessed earlier. This improvement could be attributable to a more stable economic environment globally (at least in the near-term) amid positive signs seen in the US economy and a gradual rebound in Thai industrial exports as many sectors resume production close to normal levels.
KResearch expects that Thai manufacturing and exports will continue to improve in March (signaling that the supply chain disruption problem in Asia's industrial sector is subsiding following the recovery at Thai parts suppliers), thanks to rapid recoveries within flood-hit sectors amid an absence of negative signs in the global economy.
Meanwhile, a rebound in the Thai manufacturing sector (which may result in substantial increases in machinery imports to replace equipment damaged by the flooding), plus a gradual weakening of the Baht and lofty crude oil prices in March may cause Thailand's trade balance – based on the Customs Department and Ministry of Commerce's figures – to slip back into deficit. Nevertheless, this points to the fact that the Thai manufacturing and export sectors, as well as the overall Thai economy, are on a course toward recovery. Based on our preliminary assessment, it is expected that contractions seen in the Thai manufacturing and export sectors during 1Q12 may slow to (-)5.0 percent YoY and (-)0.5 percent YoY, respectively, which would be better than the sharp contractions of (-)34.2 percent YoY and (-)4.8 percent YoY in 4Q11.
Looking ahead, it is expected that the Thai manufacturing sector will continue to be driven by growth in production from flood-affected industries that will help bolster exports in 2Q12. However, someheadwinds are foreseen over the remainder of the year, including a slowing Chinese economy, the intractable Eurozone debt crisis and persistently high oil prices that may inhibit global economic growth.
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