The Thai stock market wasn’t expecting
any good news out of the BOT’s February economic numbers. And,
the market didn’t get any good news. Even though the BOT continued
to point out the “overall stable economic trend” in the accompanying
comment, the numbers are clearly worrying.
We don’t consider a stable trend
as positive as long as industrial capacity utilization stands
at 55.6%. Last year, we took a much more positive view based on
the assumption that exports would continue to record double-digit
growth and domestic demand would gradually improve.
The picture has changed now with
the slowing global economy, negative export growth and signs of
weakness in the domestic market. The problem is magnified by the
threat of a resurgence in the financial system’s non-performing
loans.
A weak baht policy isn’t an option
for recovery. The simultaneous declines in regional currencies,
led the Japanese yen, won’t allow Thailand to gain any competitive
advantage in the export market. As was proven following the disastrous
floating of the baht in 1997, the net effect of a weak baht would
be a worsening of the country’s bad debt problems. Although the
shock this time would be greatly lessened as the private sector
has retired a large portion of its foreign debts.
The one positive factor from the
February numbers was the trade surplus of $218mn. However, this
was largely achieved by the 10.9% decrease in imports, the first
negative growth in imports over the last 22 months. The degree
of the sudden decline in imports is clearly an indication of the
slowing domestic demand and, at the same time, foreshadows a further
slowdown in exports over the next couple of months.
The BOT points out that consumers
have less confidence over their income prospects, which in turn
is leading to cautious spending. We were hopeful that the formation
of the Thaksin government in February would help instill some
consumer confidence. However, if this was a positive factor, it
was completely negated by the worsening economic numbers coming
out of the US.
It’s also clear that the estimated
Bt20bn spending by political parties in the run-up to the January
6 election has had an insignificant impact on consumer spending.
More worrisome, however, is the fact
that persistent reductions in interest rates are failing to stimulate
the economy. Even though most banks cut their deposit and lending
rates by 0.5% in February, there has been no subsequent improvement
in investment, consumption and manufacturing figures. This indicates
that Thailand’s economy is caught in a liquidity trap, similar
to what Japan has experienced in recent years.
In the past two years, Thailand has
managed to lift itself out of the economic morass resulting from
the 1997 baht devaluation thanks to its strong export growth –
last year, for example, exports increased 19.6% year-on-year.
The global economic slowdown has taken its toll on Thai exports
this year, with January and February exports declining 3.9% and
3.7% year-on-year. With the US and Japan accounting for about
36% of Thailand’s total exports, there’s little chance of any
improvement in export numbers over the next few months.
PM Thaksin Shinawatra is scheduled
to address the nation this Tuesday to give a true picture of the
Thai economy and to present the government’s remedial measures.
We don’t expect any new revelations that would change the market’s
current perceptions. Also, we don’t expect any surprising new
measures. At best, we are hoping that it will serve as a fresh
impetus for the bureaucrats to back the government’s economic
measures and accelerate the implementation process.
BOT Economic Indicators for February
