Thailand’s export growth this year may be flat after Thailand’s outbound shipments in May recorded the sharpest drop in 34 months.

After the Commerce Ministry on Friday released the figures of Thai exports in May which dropped 5.8 percent year-on-year, contracting for seven consecutive months and the sharpest drop in 34 months, economists are now revising their export projections without ruling out the possibility of export contraction this year.

The trade war between the US and China has taken a toll on Thai outbound shipments as Thailand’s customs-cleared outbound shipments fell by 5.8 percent to USD21.01 billion in May for seven months in a row. Thai exports dropped 2.6 percent in April and 4.9 percent in March.

In the first five months of this year, the export value declined 4.5 percent year-on-year, the figure excluded the export value of arms which were sent back to the US after the military drills in February.

The ministry’s export figures prompted the Siam Commercial Bank’s Economic Intelligence Unit and Kasikorn Research Center to revise the export growth from their initial projections.

Siam Commercial Bank’s EIC on Friday predicted that the Thai export growth in 2019 may drop below its initial forecast of 0.6 percent because Thai exports did not show signs of recovery in May. The EIC said it is now revising the export projection and will announce the new projection next month.

Kasikorn Research Center also revised down the export growth in 2019 from 3.2 percent to 0 percent. However, the figure is based on an assumption that the export value in the remaining seven months of this year would reach USD21.56 billion per month, which is higher than the average export value in the first five months of USD20.31 billion.

Strong Thai Baht is also one of the factors to dampen Thailand’s outbound shipment. Kasikorn Research Center however expected the Monetary Policy Committee (MPC) to keep the policy rates unchanged at 1.75 percent during its meeting on June 26. This is despite calls from the exporters for the central bank to rein in the Thai Baht to boost exports.

Kasikorn Research Center predicted that the central bank is unlikely to lower the interest rate because of its concerns over rising household debts which have risen for three consecutive quarters and the quality of debt which begins to show deteriorating signs.

Impact from trade war

Economists attributed the drop largely due to the trade dispute between the US and China.  After the truce from December last year to April 2019 ended, the tension was escalated in May when Washington imposed additional tariffs on USD200 billion worth of Chinese exports.

The intensifying trade tension sent repercussions around the globe. The US Trade Policy Uncertainty Index in May rose to 234.7 in May from 128.9 in April. The figure is in line with the Thomson Reuters/INSEAD Survey which found that the confidence among Asian companies in the second quarter this year fell to its lowest in ten years since the 2008-2009 financial crisis.

The Siam Commercial Bank’s EIC said that the companies’ worries and uncertainties due to the US trade policy are likely to impact the global trade and investment outlook.

Products which are part of the Chinese supply chains suffered a drop in outbound trade. They included computer and parts (-1.8 percent), rubber (-9.9 percent), integrated circuits (-16.4 percent) and chemicals and plastics (-16.5 percent), year-over-year. The shipments of auto and parts also dropped 17.2 percent, rice, dropping 13.3 percent, and sugar export recording a minus 14.4 percent growth year-over-year.

Thailand’s exports to China, Japan, Hong Kong, five ASEAN countries and the European Union declined 7.2 percent, 4.4 percent, 3.2 percent, 14.3 percent and 8.6 percent, respectively.

However, Thailand’s shipments to the US, India and Vietnam increased 7.8 percent, 4.4 percent and 0.8 percent year-on-year.

The EIC predicted that the Thai export growth in 2019 may drop below the initial forecast of 0.6 percent due to direct and indirect effects. Thai exports, especially those under the Chinese supply chains, are directly impacted by the US punitive tariffs against the Chinese-made goods. Indirectly, the demand for Thai merchandise from countries linking with the Chinese market is expected to drop.

Issues to be closely monitored include the possibility of the further US punitive tariffs on additional USD300 billion of Chinese exports and the likelihood of retaliation measures from China.  The market is also following the outcome of the G-20 summit to see whether there will be any solution for the trade war.

In addition, the Trump administration is planning to collect vehicle import tariffs as high as 25 percent on other countries to help their domestic automakers. The US is scheduled to announce its decision on vehicle punitive tariffs in November, pending the talks with the European and Japanese governments. The market hopes the decision would not lead up to another US trade war with European and Japanese governments.