Japanese Economy Sustains Growth – Good Prospects for Thai Exports (Current Issue No. 2531 Full Ed.)

The 2Q14 Japanese economy contracted at (-)6.8 percent, annualized, s.a. as predicted – in marked contrast to its 6.1 percent growth annualized, s.a., in 1Q14. The main culprit in that sharp fall is the consumption tax hike that caused consumers to hurriedly spend prior to its effectiveness, and thus incurring a plunge in spending during 2Q14. Japan's economy over the rest of this year will likely hinge on rebounds in its exports and domestic consumption plus any momentum generated by economic stimuli that might allow expansion of perhaps 1.4 percent, or between 1.0-1.7 percent.

Thai exports to Japan reported growth of 2.0 percent YoY in 1Q14, but 2Q14's (-)4.9 percent YoY dive dragged our 1H14 shipments down to a (-)1.5 percent contraction YoY. 2H14 exports will depend on prospects in Japan's domestic consumption and trade partners' economic outlooks. KResearch predicts that Thai shipments to Japan will probably grow 0.5 percent YoY in 2014, or between 1-1.5 percent growth with a total value forecast of around USD22-22.5 billion. This optimism is based on a rosier picture seen in July exports to Japan that had expanded 3.26 percent YoY.

Growth prospects are more obvious for products from industries that contribute to recovery in Japan's manufacturing sector. Our agricultural and agro-processed product export outlook will largely be determined by consumption within Japan. Processed chicken and frozen seafood can expect buoyancy. Chilled/frozen fresh chicken will likely experience a turnaround on opportunities spawned by the Japanese government's decision to lift its import ban on such Thai products. This coincides with rising food safety issues facing products from China, forcing Japan to turn to other producers.