Thai exports slump as neighbours' rise

Thai exports slump as neighbours' rise

A man cleans a window at a shopping centre in Bangkok on Oct 15, 2014.
A man cleans a window at a shopping centre in Bangkok on Oct 15, 2014.

Thailand is heading for a second straight year of slumping exports, something the one-time tiger economy hasn’t experienced in at least two decades and a loss that magnifies challenges for the military-run government.

Local and public spending has to take the front seat now that exports have lost their momentum. — Seksan Rojjanametakun

Shipments abroad, which make up the equivalent of about 70% of the economy, have shrunk in six out of nine months this year and will probably contract in 2014, according to the central bank. That’s in comparison to an annual average pace of growth of about 13% in the period 2002 to 2012.

While Thailand has grappled with political instability and record flooding in recent years, rivals including Vietnam and the Philippines have seen exports climb. Investment proposals for infrastructure have been delayed for months by violent unrest that ended when Prayuth Chan-Ocha, the former military chief, seized power in a May coup.

“It’s possible that exports will lag behind other countries in the region like Vietnam, Malaysia and the Philippines which used to trail us in the past,” said Santitarn Satirathai, a Singapore-based economist at Credit Suisse Group AG. “We have obsolete technology and other structural problems that we must fix. The question is, can Thailand do enough to keep attracting foreign and domestic investment. It is quite worrisome.”

Gross domestic product expanded 0.6% in the three months through September from a year earlier, the National Economic and Social Development Board said today. That is slower than a median estimate of 1% in a Bloomberg News survey. The economy grew 1.1% from the second quarter, compared with a median estimate of 1.5%.

Innovation slide

The economy is forecast to grow this year at the slowest pace since 2011, when thousands of factories were inundated by the worst floods in 70 years. The NESDB today said it expects GDP growth of 1% for the full year.

Thailand has been losing its export competitiveness in electronics in the last three years, especially in the manufacture of hard disk drives as companies failed to adjust production to meet shifts in consumer preferences, the central bank said in a report in June. Investment in research and development has lagged that of countries such as Singapore, Malaysia and Indonesia, while local firms have invested more overseas because of tax incentives and higher wages, it said.

Thailand’s ranking for innovation in the World Economic Forum’s Global Competitiveness Index fell to 67 in 2014 from 33 in 2007, even as the Philippines, Indonesia and Malaysia rose.

Electronics, which made up 14% of total Thai exports in 2013, have risen 3.8% so far this year compared with an increase of almost 10% in 2007.

Production hub

“Thailand positioned itself as a production hub for hard disk drives for so long, but didn’t do anything to get foreign companies to invest in modern technology,” said Thanomsri Fongarunrung, an economist at Phatra Securities Plc in Bangkok. “Demand for PCs has fallen with increased demand for smartphones, and we never fully recovered the share lost to other markets after the 2011 floods.”

The NESDB today said export value this year will probably be flat, and that it expects the value to grow 4% next year. The economy may expand 3.5% to 4.5% in 2015, the agency said.

The monetary authority kept its policy rate unchanged at 2% earlier this month, and governor Prasarn Trairatvorakul said last week that while the current rate is accommodative for growth, it can be eased further if the economy fails to recover.

“The soft 3Q GDP print raises the odds of a more dovish monetary policy statement,” said Weiwen Ng, a Singapore-based economist at Australia & New Zealand Banking Group Ltd. “If this sluggish pace of growth persists, the window for easing could potentially be opened,” he said, adding that exports aren’t likely to provide a material boost to growth.

Still interested

The baht was little changed at 32.786 against the US dollar as of 10.34am in Bangkok. It has slipped almost 3% against the US dollar in the past three months.

The government has unveiled a stimulus package of about $11 billion to provide cash handouts to farmers and pledged to accelerate budget spending to boost consumption. The finance ministry last month cut its GDP growth forecast for the year to 1.4%.

Foreign direct investment applications approved from January to October fell 38% from a year earlier, according to the Board of Investment.

“I have met with executives of big corporations, and they are still interested in investing here for exports,” said Supant Mongkolsuthree, chairman of the Federation of Thai Industries, an association of manufacturers. “With the government’s increased spending on infrastructure, we expect more investments from foreign companies in the future.”

Thailand will need to do more to attract investors, as there are other options in the region now, said Ms Thanomsri.

“We have to add value and make ourselves attractive as there are many competitors now,” said Ms Thanomsri. “We need to give more incentives, solve the problems with labour and infrastructure. We can’t just sit here and wait for investors to choose us.”

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