Terror attack in US had an impact on Thailand’s October economic numbers, but not as much as originally feared

Last Friday, the Bank of Thailand released its October economic figures. Overall, the numbers were quite mixed and should be slightly better than the market’s anticipation of a more marked slowdown in the wake of the 9-11 event. Surprisingly, production, utilization and investment indicators were up from the previous month. However, this was probably more due to the lack of quality data rather than an actual pick-up in economic growth in the month.

It may be too early to see the impact of 9-11 on consumer and investment sentiment, but Thailand’s export sector is clearly suffering. Exports in October fell 14.2% yoy, the biggest monthly drop over the last 10 years. However, with imports falling at a faster rate of 15.1%, Thailand continued to record trade, current account and balance of payments surpluses. On the other hand, the decline in imports doesn’t bode well for either future exports or the true health of the domestic consumption and investment sectors.

Despite the sharp decline in exports and imports, the Thai economy appears to still be in positive growth territory, but just marginally. At this point, we are maintaining our forecasts of GDP growth of 1.2% this year and 2.0%, which has already conservatively factored in negative growth in the fourth quarter this year and first quarter of next year.

• Production : According to the Bank of Thailand, the manufacturing production index grew by 1.8% yoy in October after briefly turning negative the previous month. The seasonally-adjusted production index stood at 114.5, its highest level of the year. Industrial capacity utilization was also the highest level over the last 10 months at 55.1%. Both production and utilization numbers, however, are slightly skewed by the on-and-off domestic liquor industry and the sharp increase in auto production from a low base. October also saw a surprising increase in the production for building materials, steel and tinplate, as well as a slightly lower rate of contraction in the electronics sector from the previous month. Production of ICs and TVs were down 43.7% and 18.7% yoy in October, an improvement over the 48.5% and 29.2% yoy declines incurred in September.

• Consumption : With exports slowing, domestic consumption will be the mainstay of the Thai economy. However, consumption is one of the most difficult sectors of the economy to gauge. Two of the broad-based indicators – value-added tax collection (VAT) and imports of consumer goods – are showing different pictures. VAT collection was up 10.5% in October, while imports of consumer goods were down 12.5%. Meanwhile, passenger car and motorcycle sales are slowing, but still expanding by a respectable 21.8% and 23.1%, respectively. We can only interpret this to mean that Thai consumers are willing to spend on big items, particularly housing and cars, due to the current low bank deposit rates. At the same time, consumers are apparently forgoing luxury non-essentials.

• Private investment : We were quite surprised to see signs of improvement in the private sector investment indicators. Commercial car sales increased by 11.7%. Meanwhile cement sales rose 2.6% yoy, with demand for other building materials also up on the recent recovery in housing sales. Like consumption, however, Thais appear to be shunning imports with imports of capital goods declining 11.9%.

• External Sector : Thailand’s total merchandise exports fell 14.2% yoy in October, the biggest decline since we began collecting data in 1992. However as imports also slumped by a corresponding 15.1%, Thailand still managed a trade surplus of $275mn. Including the service and transfer accounts, Thailand achieved a current account surplus of $500mn in October. We assume that there were sizeable net inflows of equity and investment in the month, allowing the Bank of Thailand to repay $150mn of its foreign debt and still maintain a positive balance of payments of $488mn. Thailand’s international reserve at the end of October totaled $33.1bn, the highest level since February 2001.