Export weakness to remain a major drag on Thailand economy

SINGAPORE (ICIS)–Weak exports will continue to be a major drag on Thailand’s economy in the second half of this year despite an expected recovery in domestic activity.

Full-year exports by value are expected to fall by 10%, a steeper decline compared with the 3.3% recorded in 2019, according to Thailand’s National Economic and Social Development Council (NESDC).

In the second quarter, exports plunged at a record pace of 27.6% year on year, with shipments of petrochemicals down 18.8% and those of petroleum products slumping by 42.7%, official data showed.

Overall exports in April to June 2020 to key markets including the US and China posted growths, reversing the contraction in the previous quarter. But shipments to Japan, the ASEAN, the EU, Australia, and Middle East declined.

Imports for the period fell 22.9% year on year, dragged down by lower volume intake of fuel lubricants, vehicle/transport accessories and raw materials.

The Thai economy posted a second-quarter contraction of 12.2% year on year, the deepest contraction since the second quarter of 1998, also due to a significant decline in tourism receipts.

For the whole of 2020, the economy is now projected to contract by between 7.3% and 7.8% in 2020, deeper than the previous projection of between a 5-6% decline, NESDC said.

It cited the slump on foreign tourism revenues, the pandemic-induced severe global economic recession, and drought conditions in the country as reasons behind the downward revision in GDP forecasts.

Thailand had suffered a severe drought in the first half of this year which hurt agricultural output.

Second-quarter agricultural output declined by 3.2%, following a 9.8% decline in the previous quarter, due to low water levels in most reservoirs and natural water resources in the country, according to NESDC.

“The economy has been dragged by Thailand’s key growth engines, specifically trade and tourism, while growth pangs in its external environment has been compounded by the relatively stronger Thai baht, which gained over 6.0% in Q2, making it the second-best performing Asian currency,” Singapore-based Global Economics & Markets Research said.

“More worryingly perhaps, is the contraction of capital goods imports (-16.2% year on year in Q2) which fell for its third consecutive quarter, suggesting that investment demand has been lacklustre as firms remained cautious over the coronavirus-led drags,” it said.

Thailand’s manufacturing sector declined by 14.4% year on year in the April-June period, much steeper than the 2.6% contraction in the first quarter.

Over the coming quarters, domestic activity in Thailand is expected to recover gradually as authorities relax confinement rules and stimulus measures feed through, Fitch Solutions Country Risk & Industry Research said on Tuesday.

“We believe that Q2 20 [second quarter 2020] will mark the worst of the economic shock to Thailand as lockdown measures are eased both domestically and externally,” it said.

“We expect the domestic recovery in H2 20 [second half 2020] to be significantly supported by the stimulus measures enacted by policymakers, but this [is expected] to fail to offset the drag from the export sector.”

Fiscal stimulus measures equivalent to around 10% of GDP and cuts to the Bank of Thailand’s (BoT) key policy interest rates to all-time lows are expected to support domestic activity, according to Fitch.

Focus article by Nurluqman Suratman

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