We see very little positive news in
the Bank of Thailand’s March economic numbers released on
Monday. Even the Bank of Thailand’s director of international
economics department, Chittima Duriyaprapan, admitted that the
indices show mixed signs in terms of future trends. This
essentially means that Thailand’s fragile economic recovery is
vulnerable to external factors, particularly the slowdown in the
US and Japanese economies and regional political developments.
The big worry had been shrinking
export markets in line with the slowdown in the US and Japan,
which directly buy about 36% of Thailand’s total exports. In
March, Thailand’s exports rose 3.5% yoy to $5,827mn. Even this
meager growth is being seen as positive, as it reverses the
previous two months of negative growth. The Bank of Thailand now
expects export growth of only 3-4.5% if the US economy doesn’t
quickly recover. At the beginning of the year, the export growth
target was above 10%. The revised number looks achievable with
average monthly export receipts of $5,800-5,900mn.
Probably the biggest surprise in
the March numbers was the 21.1% yoy increase in imports. This is
partially due to higher oil imports and a 4.7% increase in
consumer goods. Although we would normally say that increases in
imports of raw materials bode well for the export sector over the
next several months, the erratic import figures thus far this year
is not showing a clear picture.
The decline in the country’s
current account surplus in March to only $327mn won’t inspire
confidence in the baht, which has been battered by negative
regional factors. In March, the balance of payments was a negative
$241mn and the country’s official foreign reserves declined by
$900mn to $32,300mn. This was due to foreign debt repayment by
both the public and private sectors. According to one source, the
Thai government repaid $395mn of its IMF loan in the month.
Domestic consumption and
investment, meanwhile, wasn’t expected to show any signs of
improvement and didn’t. Although car and motorcycle sales are
picking up, investors should keep in mind that this is still from
a very low base. The best two indicators are the manufacturing
production index, which fell 1.8% from the previous year, and
industrial capacity utilization, which rose back to 59.8% from
54.2% in February.
We believe that DBS chairman, S,.
Khanabalan, hit the nail on the head when he said that
non-performing loans remain a “big fear,” potentially holding
back the recovery of the Thai economy. The first quarter banking
results released a couple of weeks ago confirm this. Banks are
still not lending, while debt restructuring slows and relapsed
NPLs grow. Even in this current low interest rate environment,
consumers and investors don’t have enough incentives to spend.
Another disappointment is the initial
failure of the new government’s promises and policies to shore
up consumer confidence, although it is clearly too early to judge
this government’s performance. While the government will try to
use fiscal policy to stimulate the economy, these efforts could
be completely negated with worsening external factors outside
the government’s control.
