10-8-2023 (BANGKOK) The prospects of Thailand’s exports are under a shadow as the Federation of Thai Industries (FTI) predicts a potential contraction of more than 2% this year. This anticipated decline comes in the wake of an interest rate hike by the US Federal Reserve and mounting concerns over elevated global energy prices anticipated during the winter months.
Kriengkrai Thiennukul, Chairman of the FTI, expressed apprehension about export growth as the Joint Standing Committee on Commerce, Industry, and Banking adjusted its export growth projection last month, downgrading it from -1% to -2% for the year. The committee’s most optimistic scenario posits zero growth in exports.
Mr. Kriengkrai has attributed these challenges to the likelihood of the US Federal Reserve implementing further interest rate hikes this year. The Fed’s recent 25 basis points hike in July marked its most substantial increase in 22 years, potentially elevating borrowing costs for businesses.
The Federal Reserve’s motive for these rate hikes lies in its aspiration to stabilize prices within the United States, with the benchmark rate being adjusted to a range of 5.25% to 5.5%.
The compounded effect of rising interest rates, coupled with the projected surge in energy demand during the winter months, contributing to increased energy prices, has raised concerns about dampening consumer purchasing power. This, in turn, poses a formidable challenge to export growth.
Mr. Kriengkrai voiced a pessimistic outlook for the global economic landscape in the latter half of the year. He underscored that even the anticipated upswing in goods orders during the festive season, encompassing Christmas and New Year celebrations, may struggle to provide a substantial boost to the beleaguered export sector.
According to data from the Commerce Ministry, Thailand’s exports sustained a downward trajectory for the ninth consecutive month in June, contracting by 6.4% to reach a value of $24.8 billion. Within this framework, exports of agricultural and agro-industrial products witnessed an 8.6% decline year-on-year, amounting to $4.53 billion. Furthermore, exports of industrial products faced a 4.6% dip, tallying $19.3 billion.
The first half of 2023 mirrored this trend, with exports diminishing by 5.4% to reach $141 billion, paralleled by a 3.5% decrease in imports amounting to $147 billion. Consequently, this has culminated in a trade deficit amounting to $6.3 billion.
The upswing in global oil prices, attributed in part to Saudi Arabia’s decision to extend a unilateral cut in oil production by approximately 1 million barrels per day until September’s end, has exacerbated concerns over energy costs for businesses. This development poses an additional strain on the economic outlook.
In response, Mr. Kriengkrai accentuated the urgency for effective energy management under the purview of a new government, ideally established in the coming month. He also highlighted the pressing issue of high household debt, constituting 16 trillion baht or 90.6% of GDP, which could potentially escalate further to 120% of GDP when factoring in debts from loan sharks.
