June economic figures show no sign of improvement

The Bank of Thailand’s monthly economic release yesterday did not produce any surprises. The best that the BOT could describe the June economic situation was stable. However, it is clear that the decline in exports, combined with slowing domestic consumption, is leading to a further slowdown in the Thai economic growth. The investment sector appears to be slipping back into a depressed state, as well. The Thai stock market, however, paid little notice of the figures, as the market is preoccupied with the Thaksin asset concealment case before the Constitutional Court.

• We have been hearing consumer-related listed companies talk about a slowdown in domestic consumption since the middle of June. There is no confirmation of this from the BOT’s numbers however. Passenger car and motorcycle sales were up 37.1% and 36.5% yoy, respectively. This has more to do with short-term sales promotions, launch of new models and an increase from a low base than an indication of the health of the consumer market. Imports of consumer goods, which is a much better indicator, rose 4.4% from the previous year.

• There is no dispute that the investment sector is still in the doldrums with imports of capital goods down 4.1% and cement sales rising only 2.4% yoy. With the industrial capacity utilization still at only 53.7%, there is not reason to expand capacity. With slowing consumer spending and the export market, we are not hopeful this statistic will change any time soon.

• The slowing U.S, EU and Japanese economies hit the Thai export sector with merchandise exports declining 1.5% from the previous year to $5,388mn. For first half of 2001, Thai exports totaled $31,654mn, or 46.5% of last year’s total exports of $67,943mn. So, Thailand will need to average exports of $6,048mn per month in the second half of this year to reach last year’s level. We think the BOT’s new projection of a 1-4% decline in exports this year is more realistic.

• Thailand’s persistent net capital outflow is still a problem. Although Thailand recorded a June current account surplus of $579mn, the balance of payments was still a deficit $135mn, implying net capital outflow of around $700-850mn. This means that the government is not only failing to stimulate the economy, but also failing to achieve one of its primary monetary goals of maintaining foreign reserves. In the month, Thailand’s official reserves fell $400mn to $31,600mn. Based on our recent company visits, the vast majority of listed companies with foreign debt are still very keen to pay off their overseas loans, regardless of the BOT policy and the recent move to raise interbank rates.