10-7-2023 (BANGKOK) The value of Thai exports faced another setback in May, marking the eighth consecutive month of decline. The figures revealed a 4.6% drop to US$24.3 billion, contributing to an overall decline of 5.1% to $116 billion for the first five months of the year. This downward trend has prompted numerous manufacturers, particularly those in the furniture, machinery, steel and iron, and construction materials sectors, to adjust their production plans.
In an effort to keep their businesses afloat, some companies have started reducing work shifts and overtime payments, thereby limiting their production capacity. Unfortunately, the prospects for Thai exports for the rest of the year remain dim. Several risk factors, including the slow economic recovery of key trading partners such as the US, Europe, and China, loom over the export sector.
The persistently high global interest rates have led to an economic slowdown, resulting in increased borrowing costs for entrepreneurs. This, in turn, has escalated production costs for exporters. Furthermore, Thailand’s global competitiveness has been adversely affected by high electricity bills and expensive raw materials. The domestic agricultural sector is also at risk due to climate change, particularly the impact of El Niño, which could have negative consequences for food exports.
Given these challenges, various private groups, including the Joint Standing Committee on Commerce, Industry and Banking (JSCCIB) and the Thai National Shippers’ Council (TNSC), have trimmed their export forecasts for this year. The JSCCIB has adjusted its export growth forecast to -2%, down from -1% previously, while the TNSC has revised its shipment outlook to a range of -0.5% to 1% growth, compared to the earlier projection of 0-1% growth.
As the export sector accounts for nearly 70% of Thai GDP, its underperformance poses a significant hurdle to Thai economic growth this year. Kriengkrai Thiennukul, Chairman of the Federation of Thai Industries (FTI), stated that the group does not foresee any signs of significant improvement in exports during the second half of this year. The FTI is actively seeking ways to support the 25 industries adversely affected by the prolonged export slowdown.
The US, Europe, and Japan, which are Thailand’s primary export markets, are experiencing stagnant economies and higher interest rates. Additionally, China’s economic growth is expected to be lower than initially projected. The potential increase in interest rates by the US Federal Reserve in the second half of this year further compounds the challenges faced by Thai exports.
Local research centers anticipate that Thai exports in the second half of this year will be hampered by the global economic slowdown and China’s disappointing recovery. Thailand’s shipments to China, especially agricultural products, witnessed a 24% year-on-year decline in May. China, as the world’s second-largest economy, grapples with uncertainty stemming from a historic downturn in the property market, local government debt, and geopolitical conflicts.
To offset these obstacles, the Kasikorn Research Center (K-Research) projects a contraction of 1.2% for Thai exports in 2023. Similarly, the SCB Economic Intelligence Center (EIC) downgraded its export forecast from a growth rate of 1.2% to a 0.5% contraction, influenced by China’s underwhelming economic growth. The SCB EIC highlights China’s significant decline in imports, posing a key risk factor that will dampen Thai exports to China for the remainder of the year.
Despite the challenging outlook, the Thai National Shippers’ Council (TNSC) remains hopeful for potential growth in exports during the fourth quarter. The increased demand for year-end festivals, including Christmas and New Year celebrations, may provide a boost. However, if sentiment remains pessimistic during that time, layoffs may become an unfortunate last resort for some businesses.
The TNSC emphasizes that the economic slowdown in major trading partners, such as the US, the EU, and Japan, still poses fragility to Thai shipments. However, there are opportunities in emerging markets such as the Middle East and India. Furthermore, there is hope for economic recovery in Cambodia, Laos, Myanmar, and Vietnam (CLMV).
Aat Pisanwanich, Director of the Center for International Trade Studies at the University of the Thai Chamber of Commerce, warns of bleak prospects for Thai exports. He suggests that a slowing global economy and higher production costs, particularly labor costs, contribute to the loss of competitiveness. To address this, Thailand must form a stable government to facilitate export promotion and actively engage in free trade agreements (FTAs) to create competitive advantages in the international market.
Chaichan Chareonsuk, Chairman of the TNSC, acknowledges the significant challenges faced by Thailand’s export sector. The uncertain economic outlook in the US, Europe, and China, along with geopolitical conflicts, poses a threat to exports. However, Mr. Chaichan believes that with proactive measures, such as finding new markets and suitable export products, Thailand’s shipments could record growth this year.
The Permanent Commerce Secretary, Keerati Rushchano, remains optimistic about Thai export prospects in the second half of this year. As the global economy recovers, economic conditions are expected to improve among trading partners. The competitive baht exchange rate and plans to expand into new markets are expected to stimulate outbound shipments.
To achieve the target of 1-2% export growth for 2023, the Ministry of Commerce has developed a comprehensive export promotion plan. This plan includes various strategies such as accelerating the formation of trade representative groups, promoting cross-border e-commerce, and enhancing exports of bio-, circular and green products. The ministry also aims to tap into secondary city markets, particularly in ASEAN, the US, and Europe.
