K-Research: Restructuring of industrial sector required
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K-Research: Restructuring of industrial sector required

MPI likely to shrink again this year

An assembly line at an automotive factory in Prachin Buri province. (Photo: Bangkok Post)
An assembly line at an automotive factory in Prachin Buri province. (Photo: Bangkok Post)

Kasikorn Research Center (K-Research) predicts Thailand's Manufacturing Production Index (MPI) will contract by 2% this year, marking the second consecutive year of decline.

The research unit urged the government to expedite a major restructuring of the industrial sector.

Kevalin Wangpichayasuk, assistant managing director of K-Research, said Thailand's future industrial production might experience a slow recovery, likely declining following last year's 3.8% contraction.

"We expect the MPI to shrink by 2% this year. The primary reason is that key items in the MPI have seen significant negative performance in the first four months of this year, particularly in the categories of electronic equipment, automobiles, and construction materials," said Ms Kevalin.

"Although the food sector might continue to perform well, it may not be sufficient to offset the pressures in the contracting categories, leading to a less favourable outlook for the MPI. Consequently, the manufacturing sector will contribute less to the economy this year."

Last year, the manufacturing sector's role in the Thai economy decreased to about 25%, generating 4.5 trillion baht in revenue, down from 27% in 2022 and 30% in 2021. This indicates it is time for a significant restructuring of Thailand's industrial sector, she said.

According to Ms Kevalin, in the short term there are three steps the government can take to increase industrial production: expedite the disbursement of investment budgets; monitor imported goods for quality, which should benefit consumers and could support increased local content; and accelerate liquidity support for small and medium-sized enterprises (SMEs) because they are vulnerable to rising costs. This should run alongside efforts in the area of water management, she noted.

She said the government faces three major challenges in addressing the issues in Thailand's industrial production including uncertainty in the disbursement of investment budgets.

There were expectations earlier that the situation would improve once the budget implementation was enforced. But as of June 17, only 33% of the investment budget had been disbursed, compared to 50% in the same period of the previous fiscal year, according to the Budget Bureau's data.

According to Ms Kevalin, imports are expected to surge due to trade wars. Retaliatory tariffs between the Western countries and China might force China to seek alternative markets, one of which could be Thailand.

Currently, 24% of Thailand's imports come from China, particularly electronics, automobiles, and construction materials. With an intensifying trade war, Thailand could become a key export destination for China, pressuring Thai businesses and increasing competition in both domestic and international markets.

Ms Kevalin said the average cost structure in Thai industries, including energy, raw materials, labour, and financial costs, is facing upward pressure. Diesel prices are rising, and the minimum daily wage, which might increase to 400 baht nationwide, adds further strain, especially for labour-intensive SMEs.

Additionally, the transition from the El Niño weather phenomenon to La Niña in the latter half of the year might improve agricultural and food production due to there being sufficient water, but inconsistent rainfall and potential flooding could also affect production, putting pressure on certain businesses.

Burin Adulwattana, managing director at K-Research, said if Donald Trump wins the US presidential election and imposes a 60% tariff on Chinese imports as he has pledged, it would have global repercussions.

"The relocation of Chinese production bases to other countries, including Thailand, if the US raises tariffs on Chinese imports may not materialise. Moreover, if all countries implement tariff measures, it could ultimately lead to a Great Depression more severe than the one 90 years ago," he said.

Nattaporn Triratanasirikul, deputy managing director at K-Research, said in the first half of this year, the Thai economy grew by 1.6%, driven by domestic consumption and tourism. In the second half, the economy is expected to grow by 3.6%, supported by investment expansion, export recovery, and continuous growth in the tourism sector.

The research house maintains its forecast issued in May for Thai economic growth to reach 2.6% this year.

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