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18 Jan 2017

International Economy

Hard BREXIT: Thai Exports to EU to grow 1.0% in 2017 (Current Issue No. 2814)

Although market reactions to the ;Hard BREXIT” stance of the new UK Prime Minister are not decidedly negative, this issue, plus fragility in Europe's banking sector and elections scheduled soon in many nations there, would seem to pose impediments to their economic recovery. Against this backdrop, we at KResearch foresee slow growth there in 2017, given that a hard BREXIT may force many UK businesses to make severe adjustments, which could cause a political turnaround in the EU and eventually lead to economic restructuring ahead.

KResearch expects that EU 2017 economic performance will reach perhaps 1.6 percent growth YoY, or be within 1.4-1.8 percent, if there is a hard BREXIT, but election results do not pose any significant repercussions to their economy or business sector. Subsequently, Thai exports to the EU this year should expand 1.0 percent YoY to a total value of USD22.22 billion (within 0.0-2.0 percent growth, equal to USD22.00-22.44 billion). Export categories with promising outlooks would mostly be high-end products that have significant added value, e.g., automobiles and parts, processed rubber products, technology products, advanced electrical appliances, electronic devices, canned foods, health foods, animal feed and foods for elderly consumers.

Thai businesses should also adjust themselves to economic and political changes in the EU, wherein obstacles may prevail through the year and later. Economic and business restructuring there will become clearer after the hard BREXIT ensues around the end of March 2017. Matters that Thai businesses should pursue include preparations vis-à-vis EU economic restructuring due to the loss of multilateral FTAs that may take some time to clearly define, plus perhaps harsher standards on product quality, and new ‘Industry 4.0' production processes using state-of-the-art automation that could diminish the size of labor forces.

Even amid concern toward the EU economy and renewed trade protectionism, the EU will likely remain a key export market still taking 10-percent of our total exports, at about USD20 billion a year. The region also represents a good niche market for high value goods. Thus, Thai exporters should not overlook the quality of their goods or efficiency in producing them to meet consumer needs; as well as a need to fortify their competitiveness if lacking trade privileges or FTAs.

International Economy