Prospects for Thai exports look weak this year as a storm of economic uncertainties are expected to slow down shipping.
The Federation of Thai Industries (FTI) lists the likelihood of a global recession, the impact of the prolonged Russia-Ukraine war, high inflation and currency fluctuations as risk factors behind sluggish international trade in 2023.
Even car exports, which have been posting growth this year, are subject to change if the recession hits the automotive industry.
Thai outbound shipments are expected to contract in the first half of the year but may improve in the second half, according to the International Trade Promotion Department.
Commerce officials reported late last month that the customs-cleared value of exports dipped for a fifth month in a row in February, falling 4.7% year-on-year to US$22.4 billion (730 billion baht), while imports increased by 1.1% to $23.5 billion, resulting in a trade deficit of $1.11 billion.
Cars sit ready for export at Laem Chabang port in Chon Buri province.PatiPat JantHong
LOOMING DOWNTURN
Signs of an export slowdown have been seen since late last year when key economic indicators showed a drop in exports and growing worries over a 2023 recession.
“The FTI saw the signs during the third and fourth quarters last year from the decrease in goods purchase orders and production in many factories,” said Kriengkrai Thiennukul, chairman of the FTI.
The customs-cleared value of exports contracted for three consecutive months in 2022 — a 4.4% year-on-year dip in October, a 6% year-on-year decrease in November, and a 14.6% year-on-year drop in December, according to the Commerce Ministry.
Exports of agricultural and agro-industrial products declined for three consecutive months, contracting by 11.2% year-on-year in December to $3.59 billion.
Among these products were rice (-4.1%), cassava products (-12.4%), rubber (-47.7%), canned and processed fruits (-20.5%), and sugar (-45.4%).
Industrial product exports also dipped for a third consecutive month, falling by 15.7% from December last year to $17.2 billion.
In the same month, Thailand’s Manufacturing Production Index (MPI) fell by 8.19% year-on-year to 93.98 points, the lowest level in 28 months, as the world economy contracted.
The full-year MPI managed to increase slightly by 0.62% year-on-year to 98.32 points, according to the Office of Industrial Economics (OIE).
Many countries have grappled with the economic slowdown and weak purchasing power, noted Warawan Chitaroon, director-general of the OIE.
Thailand’s export markets in the US and the EU turned sluggish, which led to fewer orders for goods, she said.
Capacity utilisation in December stood at 59.6%, down from 61% in November. For the whole year, capacity utilisation was 62.6%.
The situation appeared to be developing in a direction projected by the World Bank.
In September last year, the World Bank warned of the possibility of a global recession in 2023 after central banks raised interest rates in response to high inflation.
A few months later, Thai entrepreneurs were gripped with growing concerns over unpleasant economic conditions. In December, the Thailand Industry Sentiment Index (TISI) dropped for the first time in seven months to 92.6 points, according to the FTI.
The indicator fell from 93.5 points in November because of many holidays in December, a decrease in production capacity as well as a drop in new goods orders, said Mr Kriengkrai.
The December TISI was based on a survey of 1,303 enterprises across 45 industries under the FTI. Respondents said a global economic slowdown was their main concern, with votes of 71.5%, followed by higher loan interest rates (48.8%) and the impact of a stronger baht on Thai exports (44.5%).
The foreign exchange rate remained on entrepreneurs’ list of worries when the survey was conducted in January this year. Fluctuations in foreign exchange have affected exports.
In the view of Suchart Chantaranakaracha, vice-chairman of the FTI, the baht’s value should stand at 34 per US dollar, but its value has fluctuated greatly from 38.08 in October last year to 32.88 in February.
Kriengkrai: Exporters need new markets
LIMITED GROWTH
The Automotive Industry Club of the FTI expects car manufacturing for exports to slightly grow by 1.22% this year to 1.05 million units, but whether the target will be achieved depends on global economic health, said Surapong Paisitpatanapong, vice-chairman of the FTI and spokesman for the club.
In 2022, manufacturers produced 1.03 million cars for export, a year-on-year increase of 8.45%, and made 846,198 units for the domestic market, a year-on-year increase of 16.1%.
The club expects total car manufacturing in Thailand to stand at 1.95 million units in 2023, following the expansion of car exports in 2022. Last year, total car production stood at more than 1.88 million units.
Thailand’s main export markets in 2022 were the Middle East, other Asian countries, Australia and Africa. Shipments to Europe and the US dipped because of the economic slowdown and the impact of the Russia-Ukraine war.
Mr Surapong said the club will review the annual target in the middle of this year, as there may be some factors, notably a global recession, which could affect the automotive industry.
Last year, the club initially set a total car manufacturing target in Thailand of 1.8 million units but later decided to downgrade it to 1.75 million units after the Russia-Ukraine war worsened the prolonged global semiconductor shortage as the two countries are major exporters of neon gas, a key material in chipmaking.
However, the semiconductor shortage eased between September and November, following a drop in chip demand from electrical appliance and information technology businesses since June.
With more chips supplied to automakers in Thailand, Mr Surapong said at the time that the car manufacturing target would be 1.8 million units.
The club is monitoring the chip situation, the global economy and the Russia-Ukraine war, all of which could affect the country's automotive industry.
In February this year, total car production rose by 6.3% year-on-year to 165,612 units, according to the club. Car manufacturing for export rose by 11.4% year-on-year to 88,525 units in the same month, as the global semiconductor shortage eased.
An assembly line at Honda’s Prachin Buri car plant. Semiconductor availability is a factor that will influence car production this year.PattanaPong Hirunard
LONG-TERM SOLUTIONS
To cope with economic uncertainties, the state and private sectors should adopt more sustainable solutions by not relying on certain overseas markets and signing more international trade deals to further promote exports.
“Exporters should seek new markets to export products. Their markets should not be limited to the US and Europe, which may enter a recession,” said Mr Kriengkrai.
The FTI also called on the government to speed up negotiations with foreign countries on free-trade agreements. That includes the Gulf Cooperation Council, which comprises Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain and Oman.
“The negotiations will enable Thailand to benefit from the full potential of export,” said Mr Kriengkrai.
Neighbouring countries like Vietnam are gaining benefits from many international trade deals. Vietnam has 16 free-trade agreements, covering 55 countries, while Thailand has 14 such deals, covering 18 countries.
“The Thai economy has greatly relied on exports, which contribute more than 70% of the country’s GDP growth,” said Mr Kriengkrai.
Export previously played a crucial role in driving the Thai economy, which was subdued by the impact of Covid-19.
The pandemic erupted in Thailand in early 2020, causing the government to adopt lockdown measures, including a night-time curfew and strict international and domestic travel restrictions, to control the outbreak.
The spread of the highly transmissible virus was eventually contained at the cost of economic activities, especially the downturn of the tourism industry.