Thailand’s export markets have been hit by a perfect storm including a sudden shift away from conventional automobiles in western countries and even Asia. This has been exacerbated by expansionary interest rate policies in western countries which have particularly driven up the Thai baht. However, the spanner in the works for Thailand’s export trade has been the US-China trade war and punitive US tariffs on Chinese made products.
The Director-General at the Trade Policy and Strategy Office at the Ministry of Commerce, Pimchanok Vonkorpon, has held out hope that Thailand’s exports can still hold their own in 2019 despite dropping by nearly 3% in the first half of the year. Figures out today show a 2.15% drop in exports for June. The figures were especially disappointing as they showed a drop in exports to the United States which had been growing during the trade spat. The data shows a staggering drop of nearly 15% in exports to China. The top Ministry of Commerce official has also suggested that the negative trend may continue into the third quarter.
While the IMF had encouraging news on Friday for the Thai Finance minister, the news today that Thailand’s exports have fallen for the fourth straight month has spooked markets including the SET in Bangkok. The news was expected however by some observers given the trend and the continued turbulence in the world economy as the US-China trade war continues and US tariffs continue to inflict damage on China’s exports to the world’s largest economy.
Lower base for exports data beginning next month will make those export figures telling
What many commentators are looking to is the July set of figures due out at the end of August. This is significant as it will coincide with the beginning of the fall-off last year. This will be the beginning of a new, lower base with which to gauge the trend.
June exports officially down 2.15% on last year
On Monday, the Commerce ministry broke the bad news by confirming that exports clearing out of Thailand in June were valued at $21.4 billion. This was a drop of 2.15% year on year and Thai authorities will be hoping that this will represent a tapering off of the rate of deceleration. The drop was 5.5% in May while April came in with a 2.6% decline and March registered 4.9%.
Drop in exports to the United States is quite disappointing after they had been rising
However, the story behind the latest figures is disappointing as exports to the US which had been rising, dipped by 2.1% in June. The drop in exports to China was staggering at 14.9% showing clearly the origin of the problem. There was also a decrease in imports of 9.44% coming in at $18.2 billion giving the kingdom a healthy trade surplus of $3.21 billion. This is indicative however of a sharp fall-off in economic activity.
The figures for the six months show Thailand’s exports dropping by nearly 3% and an overall trade surplus of nearly $4 billion.
Senior ministry official warns the negative export trend may continue into the third quarter
The Director-General of the Trade Policy and Strategy Office at the Ministry of Commerce, Pimchanok Vonkorpon, accepted that the drop off in exports was clearly linked to the US-China trade spat. Significantly, she suggested that the negative trend may continue into the third quarter of the year including July.
Hopes now pinned on a fourth-quarter recovery
The top industry official held out hope, however, that the export picture will rebound in the fourth quarter of his year. Ms Pimchanok based this on an expansion of targeted exports and efforts to substitute markets as Thailand’s exporters adjust to the challenges posed directly by the US tariffs on Chinese products. She is also hopeful that better tourism prospects in the second half of the year and associated products may contribute to the recovery.
Western economies pursuing an expansionary interest rate policy is impacting Thailand
Ms Pimchanok was easily able to detail the causal factors that have hit Thailand’s exports so hard since July 2018. Firstly, the global slowdown and a decrease in prices worldwide for commodities. She also pointed to the problems of the Thai baht which is, in fact, being driven up by interest rate policies being pursued in western countries to boost their own economic activity. This is driving investment capital to Thailand and pushing the Thai baht higher.
US is expected to lower its interest rate this year
In recent weeks, the Chairman of the Federal Reserve in the US, Jerome Powell, appears to have given way to US President Donald Trump when he all but confirmed that the US will have an interest rate cut later this year despite strong job numbers.
Switch to electric cars very damaging to Thailand
Thailand has also been hit by a change in consumer demand in western economies and even in Asia where electric cars have now become the focus. Thailand’s export trade and the industry is heavily reliant on the automobile industry based on petrol and diesel cars.
Thailand can still hold its own in exports with consistent figures in the second half
Ms Pimchanok was however not given up on the goal of Thailand’s exports holding their own for 2019. ‘If Thailand is able to maintain export values at an average of $20-21 billion a month for the remainder of the year, overall shipments are likely to grow 0-1% this year,’ she said. There are some grounds to believe this may be possible as the comparative figures in the second half will be compared with similar figures in 2018 when the trade war hit Thailand very hard. It has now been shown to have caused a huge shock to Thailand’s exports and one that it has yet to recover from. It is also clear that it is one brought about by an over-reliance on China as a trading partner.
Further background:
Crunch for Thai economy as exports dive. Fears that Thai baht has become a focus of speculation
Thai baht is the key reason for the continued faltering of Thailand’s exports and cross border trade
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