Thai exports have suffered a great fall. Exports contracted by 0.3% in 2013, and for the first five months of this year, shrank further 1.2% year-on-year. This is particularly alarming, as global trade has started picking up since the beginning of this year.
Thai exports are in decline due to weak demand overseas, falling commodity prices, and the production of high-tech products that have become technologically obsolete.
Analysis of Thailand's diverse exports by SCB Economic Intelligence Centre shows that there are three main factors behind the recent weak performance. The first factor is planned structural changes in product mix. The second factor can be temporary, albeit quite damaging — weak demand in primary export destinations and a global decline in prices for agricultural commodities.
The last and most troubling factor has led to sharp cutbacks in several of our key tech-related exports, as these products have come to the end of their respective technological cycles. These obsolete products are fast disappearing while we are struggling for a new leap in technology. It merits serious consideration because it will help shape the future development of industry in Thailand and the nation's standing in the world economy for many years to come.
Allow me to start with the relatively comforting one of the three. It involves exports of cars. The value of Thailand's auto exports experienced no growth in US dollar terms, despite a 3% rise in unit shipments during the first five months of 2014. The main culprit is the rise of eco cars, with lower unit prices than those of sedans and trucks. Eco cars still accounted for only 17% of car exports; yet this was up nearly five percentage points from last year. This growing trend has driven down total receipts for our car exports.
One may ask how a drop in exports can be good news. At a minimum, the shift to eco cars had been planned; hence, no disruption to production planning. It is a step closer toward greener vehicle technology, which does capture rising demand in emerging markets. Most importantly, this shift does not reflect a drop in Thailand’s strengths as a regional hub for vehicle production.
Let us move on to a more distressing factor: weak demand for our key exports.
A significant drag on the total value of Thai exports has been the global decline in prices for agricultural commodities. Not only does Thailand export a lot of farm and fisheries products, but most of these are subject to price volatility related to global supply factors. This means rubber, rice, sugar and frozen seafood. These products account for 10% of all Thai exports, so the nation's export performance depends significantly on global price levels. The price of rubber, for example, fell 29% year-on-year from January to May, which caused the value of our rubber exports to slide 19%. Similarly, prices for rice, sugar and tuna also sank during the same period.
Also pretty bad is the recent slowdown in the emerging economies, which has reduced demand for Thai products. Emerging markets make up more than half of total global trade, and their import growth has slowed significantly. A clear illustration of where this slowdown hit demand for our exports is in electrical appliances, approximately one tenth of the nation's total exports. Consider that air conditioners account for about a quarter of Thailand’s total appliance exports. Our air conditioners exported to Asean fell 0.4% year-on-year from January to May, against strong growth of 30% in shipments to the US and Europe.
The last factor comes to the ugly truth, whereby the effect can be permanent: we have come to the tail end of several major tech-related exports.
Electronics exports, which include computer parts and electronic circuits, grew by just 2.5% year-on-year during the first five months of 2014, a fraction of the double-digit rates seen prior to the global financial crisis. This "new normal" is crucial because electronics account for more than 10% of all Thai exports.
For the most part, the malaise in Thai exports of electronics is a consequence of the fast-paced popularity of smartphones and tablets, which factories in Thailand play only a very small role in producing. World spending on laptop and desktop computers is levelling off, hurting Thailand because so many of the nation's electronics factories are part of global manufacturing chains for these products. Exports of computer parts, like hard disk drives (HDDs), floppy disk drives, DRAM memory chips and the optical readers used in DVD drives, comprise more than 5% of Thailand's total exports.
HDDs have been especially important to our economy. Thailand produces about 20% of the world's hard drives. During the early 2000s, the big global HDD makers like Western Digital and Seagate established major manufacturing operations in Thailand. That propelled the country out of labour-intensive production at a time when workers began to get scarce and wages were rising. Now HDDs are being displaced by solid state drives (SSDs), but SSD manufacturers chose to set up their factories elsewhere. Thai exports of HDDs grew 25% year-on-year during the first five months of the year, but the future may not be so bright.
For other computer parts, the numbers don't look good. One may not raise an eyebrow about the 91% year-on-year decline in floppy disk drive exports, because these have long been falling out of use. The surprising part is that they account for 1% of Thailand’s total exports — the same level as our famed rice exports. Other key computer parts are also growing obsolete: optical readers fell by 22% year-on-year, and DRAMs grew just 3%.
The rise of smartphones is also eroding demand for other exports like digital cameras and home/office telephones, which together represent around 1.5% of total exports. Unfortunately, camera exports shrank 29% year-on-year, while phones fell 7%.
There is no denying that Thai exports have suffered a great fall. The question lies in whether we can get export growth back to where it was before. My next article will explore this question.
Sutapa Amornvivat, PhD, is chief economist and first executive vice president at Economic Intelligence Centre, Siam Commercial Bank. She has international work experience at IMF, ING Group and Booz, Allen, Hamilton. She received a BA from Harvard and a PhD from MIT. eic@scb.co.th | EIC Online: www.scbeic.com