Exports will slowly recover in the second half of 2020 unless a second wave of COVID-19 hits the global economy, according to bank think tanks.
The Ministry of Commerce said on Wednesday that the export value has contracted by 22.5 per cent year-on-year to US$16.28 billion in May, the biggest contraction since 2009 which was the year after the Global Financial Crisis.
Excluding gold which increased by 735.1 per cent year-on-year, the export value of merchandise has actually contracted by 27.9 per cent year-on-year.
This has contributed to an export contraction of 3.7 per cent in the first five months of 2020.
The Bank of Thailand (BOT) said on Wednesday that they now expect the export value to contract by 10.3 per cent. Import value is also expected to contract by 16.2 per cent.
“It will be a slow recovery in the second half as the global economy is gradually reopening,” Komsorn Prakobphol, Head of Strategy at TISCO Economic Strategy Unit (ESU), told Thai Enquirer.
“Comparatively to other countries, Thailand’s export recovery would be slower since the trend in the second half will be about 5G and new smartphones and [Thailand] is not directly in that supply chain,” he added.
ESU now anticipates exports to contract by 9.8 per cent in 2020 before an expansion of 3.8 per cent in 2021.
Kasikorn Research Center (KRC) said the export value contraction in May is similar to what happened in Japan (contracted by 28.3 per cent year-on-year), South Korea (23.7 per cent) and Indonesia (29 per cent).
They said the main reason for the regional contraction was due to strict preventive measures in Thailand and other countries which has caused a supply disruption. This was coupled with already dampened global demand due to the lockdowns.
KRC said the only export expansion in May were the exports to China which increased by 15.3 per cent year-on-year.
Most of the products that were exported to the mainland in May were fresh, frozen and dried fruits, especially durian which increased by 234.4 per cent year-on-year.
Exports of cars and car parts to China also grew by 204.2 per cent year-on-year.
On the other hand, exports of manufacturing products have contracted 27 per cent year-on-year, led by the drop in exports of durable goods such as cars and car parts. They dropped by 62.6 per cent.
Electronic products also went back to a contraction of 14.6 per cent year-on-year after the ‘work from home’ trend began to ease.
KRC said the stronger baht, which was trading at 30.9 baht per greenback on Thursday, will be another negative factor for Thailand’s export sector at the moment.
They anticipate the export value to contract by 6.1 per cent year-on-year but there is still a need to be wary of a second pandemic wave, they added.
The ample level of liquidity in the global economy and the improving outbreak situation in Thailand has brought inflows into the country in June.
This brought the baht down from 33 baht in April to its current level as it is now returning to its pre-outbreak value of 30 baht per US dollar.
Strong baht
The BOT’s Monetary Policy Committee has on Wednesday expressed its concern over the strengthening of the baht as it could affect the economic recovery.
Tim Leelahaphan, a Thailand economist at Standard Chartered Bank, told Thai Enquirer that the Thai baht has strengthened on the outflow of gold and gold futures.
“When the global gold prices are high, reaching around $1,750 per ounce this week, people will sell,” he said. “And once they sold, they will have to come buy the baht back which is contributing to its strengthening at the moment.”
He said the BOT could be coming up with measures to mitigate the outflow situation if necessary but the Standard Chartered still expects the baht to be trading around 31 baht by the end of 2020.
Siam Commercial Bank’s Economic Intelligence Center (EIC) also anticipates Thailand’s export value to contract by 10.4 per cent in 2020.
The reescalation of the US-China trade war is also another negative factor for Thailand’s exports in the second half, they added.
Komsorn from ESU said US President Donald Trump could use the trade war to gain votes ahead of the country’s general election in November.
“Trump’s popularity is falling and [Joe] Biden is gaining momentum so Trump could be tempted to use the fight with China for his reelection campaign,” he said.
He then added that “If a second wave of the pandemic hits the global economy, it will be even worse for Thailand and any hope for export, tourism or economic recoveries will be gone with it.”
