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28 Sep 2006

Thai Economy

Key Markets Slowing...Bright Secondary Markets…Healthy Thai Exports ( Current Issue No.1903)

This year, exports are a key driving force for the Thai economy. During the first eight months of this year, exports grew 16.6 percent to total USD83.569 billion, against the 2005 growth of 14.9 percent. Remarkably, exports posted quite high growth in July and August, averaging some 18 percent, each month. As a result, Thailand's monthly exports reached a record high of THB11.857 billion in August of this year.

Thai exports to several markets were quite satisfactory during the first eight months of this year. This included Thailand's established markets, i.e., the US and European Union, and other secondary markets, namely, East Asian countries (excluding Japan), the Middle East, Australia - New Zealand and their possessions, South Asia, Africa, South America and Eastern Europe. Vast potential seems to lie ahead for these secondary markets that have gained a greater significance to Thai exports. As evidence of this, Thailand's export shipments to these markets averaged a high growth of about 25 percent during the first eight months of this year.

It is of note that East Asia (excluding Japan) -- led by China -- is the most important market for Thailand, given that around half of Thai exports to secondary markets are earmarked for this region. Exports to East Asia (excluding Japan) rose by 25.3 percent during the first eight months of this year, against the average growth of 22.4 percent in 2005. Other potential secondary markets include the Middle East, rising 31.9 percent; Australia - New Zealand and their possessions, up 25.5 percent; South America, increasing 39.4 percent; and Eastern Europe, up 33.7 percent for the first eight months of this year.

Thailand's exports to the four established markets comprising ASEAN, the US, EU and Japan grew rather slowly with an average increment of only 12.1 percent for the first 8 months of this year, which was slower than the 16.6 percent average growth of Thailand's total exports. This is due to dwindling exports to the ASEAN and Japanese markets, particularly exports to ASEAN, the number one export market for Thailand, decelerating to 10.9 percent in the first 8 months of this year, against an average growth of 14.9 percent for the entirety of last year, because of the economic slowdown within ASEAN. It is estimated that the ASEAN economy will grow an average of around 5.8 percent this year, against the growth of 6.9 percent in 2005. Meanwhile, Thailand's exports to Japan weakened to 6.7 percent in the first 8 months of 2006 compared to the average growth of 11.8 percent in 2005. Despite the stronger trend of the Japanese economy this year, Thai goods have lost some advantage in price competitiveness to Chinese goods in the Japanese market, which has diminished Thailand's exports to Japan.

KResearch believes that secondary markets will become increasingly more important as Thai export destinations. As the economic potential of these countries increase more and more, and their economic policies become more liberalized, they should represent a good opportunity for Thailand to send more exports worldwide. Therefore, other recommended proactive policies that state and private sectors should cooperate further on include:

1. A strategy of organizing Thai trade exhibitions overseas is quite a vital measure required amid the serious competition in the world trade arena. Organizing Thai trade exhibitions to other countries would open markets for Thai goods, making them better known, directly. Thai authorities should circulate other regions steadily with Thai trade fairs to familiarize customers with Thai goods. At present, all Thailand's rivals producing goods similar to ours are actively expediting their exports. For instance, Vietnam is actively promoting its handicraft exports to western countries, and is planning to organize Vietnamese trade exhibitions in neighboring ASEAN countries.

2. Partners with local allies For trade partner countries that are quite large, e.g., China, India and Russia, it is advised that a city-to-city approach is used to create familiarity with their overall market and penetrate more local markets, as well. Initial cooperation could begin with countries that have common borders and close relationships, e.g., the flagship cooperation between Thailand's northern province and Xishuangbanna, Yunnan, China, where the indigenous peoples have ethnic ties with Thais living in the northeastern provinces neighboring Vientiane, and other parts of Laos, as well as Thailand's eastern provinces with Koh Kong, Cambodia, etc.

3. Create premium brand names for Thai products continuously. Thailand shows the potential to produce many kinds of products, including both agricultural and industrial items. The authorities should support Thai brand names in order to create differentiation for Thai products from products of other countries. That could also help guarantee the premium quality of Thai products, particularly products focusing on the high-end market, by popularizing and publicizing the competencies of Thai manufacturers in the world arena. Furthermore, export products such as foods and Thai fruit need to be strictly controlled for consumer safety as well as have nice and sanitary packaging in order to preserve the quality of Thai foods and make them tastier when consumed.

4.Expand service business to the world market. Thai authorities should support service businesses where Thailand shows superior competence. The authorities should launch certifications to guarantee the quality of service businesses at uniform standards, and thus instill trust and confidence toward them among foreign customers. One way that Thailand is using to achieve this is through FTAs with trade partners, which will lead to liberalization of the service sector between Thailand and foreign countries, as well. Service businesses that Thailand shows high potential for include restaurants; massage parlors, spas and other health services, beauty parlors, Thai martial arts schools, repair garages, construction, Thai-language schools, culinary schools and tourism business. Most especially restaurants, which allow Thai cooks to work abroad. This would influence the export of Thai seasonings, culinary ingredients and equipment related to Thai cooking over the long-term. In addition, Thailand should use the services allowed by FTAs with foreign countries to give Thais the opportunity to operate businesses abroad.

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Thai Economy