Flash Notes-Thailand: May Trade Data Remain Weak
In May 2015, Thailand’s exports declined by 5.01% y/y after falling 1.7% in April, marking the fifth consecutive monthlycontraction. These results remain consistent with our view that the continued contraction in exports is partly explainedby a shift in global trade structure and is further pressured by some cyclical factors such as a slowdown in the Chinese andAsian economies, a decrease in prices of agricultural, petroleum, petro-chemical products as a result of low oil price in theglobal market, and the lapse in the Generalized Scheme of Preferences (GSP) tariff arrangement with the EU. In this context,we do not expect the recent THB depreciation to materially improve the export outlook.
In line with our expectations, Thai import growth fell further by 19.97% y/y in May after a 9.1% decrease in April. This reflectsthe fact that weak domestic demand in both private consumption and investment seen in previous months has persistedinto May. As a result, the trade balance shows a surplus of USD 2.4bn in May.
Going forward, we expect the export growth to remain weak, notwithstanding monthly fluctuations. This, in our view,should generate substantially negative spillover impacts to domestic demand, especially private investment, which isalready persistently weak. We reiterate our 2015 GDP growth forecast of 2.7%, which is below Thailand’s potential growthand well below the BoT’s current forecast of 3.0%.
Nevertheless, we consider that the BoT will likely keep the policy rates unchanged at 1.50% for the rest of this year althoughthe MPC stated in the policy statement that the committee stands ready “to utilize the available policy space appropriatelyin order to support the ongoing recovery and maintain long-term financial stability” in the periods ahead. It is since lowerinterest rates may aggravate the already-high household debt problem and reduce purchasing power of savers, whilst risesin oil and raw food prices are expected to appear in the second half of this year.
