Exports Plunge Adds To Thailand’s Woes.

[GungaDin]

http://www.ft.com/cms/s/0/c6cd5706-d045-11...?nclick_check=1

Exports plunge adds to Thailand's woes

By Tim Johnston in Bangkok

Published: December 22 2008 17:01 | Last updated: December 22 2008 17:01

Thailand's new government faces deepening economic problems with exports contracting by 18.6 per cent year-on-year in November after rising 5 per cent in October.

The contraction, the first monthly fall since 2001-02, reflects tumbling demand for exports, which account for 70 per cent of gross domestic product. Prakriti Sofat, an HSBC economist in Singapore, said: "With the external demand environment having further deteriorated, the outlook for exports looks nothing but depressing."

Exports were likely to fall more sharply in December, said Ms Sofat, noting that Thailand was among south-east Asian countries suffering from a rapid slowdown in exports to China.

The Thai export sector is dominated by products such as cars, integrated circuits and agricultural products including rubber and seafood that have a high exposure to developed markets. As a result, the impact of falling demand caused by the global slowdown has been swifter in Thailand than in some neighbours.

A recent analysis by Kasikorn Bank of Bangkok found that 97 per cent of fluctuations in Thai export volume could be explained by changes in the size of the US economy.

Thailand's external problems have been amplified by political conflict. In late November, protesters closed Bangkok's two main airports as part of their effort to oust the previous government.

About 25 per cent of Thai exports go by air, and disruption to exports together with damage to tourism are believed to have cost the country Bt100bn ($2.9bn, €2bn, £1.9bn).

The government of Abhisit Vejjajiva, prime minister, had its first full day in office on Monday. The Oxford-educated economist has promised to make the economy and bridging the country's deep political divide his main priorities.

Mr Abhisit, 44, said he was looking to extend the previous government's plans to help the rural poor and stimulate domestic demand by increasing loans to villages and bringing forward infrastructure projects.

Analysts say the economy may shrink in the fourth quarter of this year and the first of 2009, which would be the first contraction since early 2005. However, most expect growth to recover in the second half of next year.

A Reuters poll showed analysts expecting GDP to grow by 2.8 per cent in 2009, down from an estimated 4.5 per cent this year.

Copyright The Financial Times Limited 2008

[Scott]

I was under the impression that Thailand was going to weather the economic storm better than a lot of places, but it looks like that forecast just might be wrong.

[Ricardo]

Clearly the airport problem was at least a minor influence in this fall, I suspect the continuing Strong-Baht policy of the BoT is having a much more serious impact, and can only hope that the new government sees this, and does something about it.

Thailand's economy is already in a hole, not entirely of it's own making, but Please Stop Digging Now !

[bkkjames]

Interesting is that 6 months ago or so we have record oil prices and inflation levels skyrocketing and now we have Central Bank's cutting interest rates (BOT 100bps early December, largest ever cut) and heading towards deflation.

I am no economist, but hopes of a much weakend baht seems unlikely in the near term as virtually every goverment of the world is decreasing interest rates en masse in hopes of spurring their own economies.

[LooseCannon]

A few quick & dirty stats (fromm 2007)...

GDP by sector - Industry(43.9%) agriculture(11.4%)

Export partners - US(12.6%),Japan(11.9%) & China(9.7%) - 24.5% of exports to 2 countries in recession & the third one (China)not going to 'save' the world as predicted.

Thailand's major industry - Automobiles & Automotive parts (11%) - no further comment required on what going to happen here.

- Electrical appliances & components (8%) - tv, washing machines etc. - retail sales falling in the US & most other western countries expected to fall in 2009.

Thailand looks to be heading for a crash.

By all accounts we are only about a half of the way into this crisis. It is going to get worse before it gets better.

The carnage that we have at the moment has been the result of defaults in sub-prime loans (approx US$1 trillion), which are now tapering off.

The next big crisis is going to be defaults in 'Option ARM' & 'ALT-A' type mortgages (combined US$1.5 trillion). Defaults have already started to happen & will escalate into 2009 & 2010.

sub-prime loans - money lent to people with a very poor credit rating, basically people you wouldn't want to lend money too, unless you are a particularily greedy bank or mortgage broker.

ALT-A - money lent to people with a better credit rating (between prime & sub-prime). These come with a higher interest rate (greed? so they appealed to the banks) but the risk is higher loan-to-value & debt-to-income ratios.

Option ARM - generally 4 different repayment options - the most insidious of which is the 'minimum monthly payment'- pay no principal, and less interest than what accrues on the loan. The unpaid interest is added to the loan balance, resulting in what's known as negative amortization. Naturally, equity in the property falls, but in the magical world of ever increasing house prices, nobody gave a rat's arse, until now that is.

Whitney Tilson has some interesting things to say about all this - http://visinomics.com/?p=669

Probably a good time to think about what you are going to do with your money before it is 'inflated' away nothing. Gold anyone?

[Maizefarmer]

I've been harping on about just this very point in various threads related to which way exchange rates are likely to go and wheather or not to buy property (with forex) ect ect .......

Remember guys - Asian countries lag behind Western ressionary trends by about 12 - 18months, primarily because of their manufacturing/export based economies (i.e. as Western consumer spending drops, the production contracts dry up and are not re-newed).

Most notable, to Thailand at least, is Toyota's announcement in Japan yesterday that for the first time in it's history it will suffer an accounting loss - and a mighty big one at that ($1 billion plus).

How significant is this?

Very: Toyota is the worlds largest auto company (yes - it is bigger than GM), and Thailand is it's largest production base. Toyota also runs what is considered in the industry to be the best "model" - which all others aspire to and have tried to emulate over the last 50years (with varying degrees of success.)

Heard the saying: if Toyota built Mercedes Benz, it would be just as good but retail at 30% less!

Thailand can expect to see next year (2009) an even bigger drop off in export manufacturing of brand-name goods to Western markets, than that which it has just reported: putting the Baht under even more pressure (its bad enough as it is - the strongest it has been since the '97 devaluation! - though that is of course partly because the Dollar and Sterling are in such a mess themselves).

I personally do not believe the Baht is going to be able to sustain its strength against these pressures - and certainly not if China is able to adabpt its manufacturing base.

The other threat is, believe it or not Egypt: a lot of the brand name clothing manufacturers are now looking at Egypt as a manufacturing base for so-called soft goods (brand-named shoes and clothing). Egypt claims it can under cut China and Thailand on production costs. Lets see what happens!

I believe we can expect to see a sharp drop in the value of the Baht sometime over the 3rd and 4th quaters of 2009.

Hang on to your Sterling, Dollars and Euros.

Edited December 23, 2008 by Maizefarmer

[Gravelrash]

Thailand Crisis has the baht rate as a pet topic, he suggests the BOT has been reducing its interventions, also predicts the baht can't maintain this level. With falling exports, other Asian countries trying to devalue their currencies, a decimated tourist industry, it is hard to see why they want to keep it so high. Or are there some parties benefiting?

[dumball]

I was under the impression that Thailand was going to weather the economic storm better than a lot of places, but it looks like that forecast just might be wrong.

Scott , are you doubting the expertise of the Thai government ? Just ask any Thai wanabee , living in exile in some remote village , they will assure you that bugs/beatles with a hand full of rice give you all the sustenance you require on a daily basis . What on earth has global economy to do with us happy , fortunate people living off the fat of the land ? There is no economic turn down , we already know how to live under deprived conditions , bring it on !!!!!!

[OlRedEyes]

I was under the impression that Thailand was going to weather the economic storm better than a lot of places, but it looks like that forecast just might be wrong.

I wonder who's forecast that was

The denial brigade, no doubt.

[OlRedEyes]

I personally do not believe the Baht is going to be able to sustain its strength against these pressures - and certainly not if China is able to adabpt its manufacturing base.

I believe we can expect to see a sharp drop in the value of the Baht sometime over the 3rd and 4th quaters of 2009.

Hang on to your Sterling, Dollars and Euros.

The Baht has been propped up for some unknown reason for many months, exacerbating exporters woes. Why this has been done I have no clue, it makes no financial sense (to the general economy). The problem is that the downturn is going to be long and deep, and when the means to prop up the Baht runs out, as it will, the currency will crash much further than a gradual decline would have taken it.

China has it's own serious problems, maybe bigger problems than anyone else, in fact. They've been caught between a rock and a hard place. Watch this space.

[mommysboy]

Thailand Crisis has the baht rate as a pet topic, he suggests the BOT has been reducing its interventions, also predicts the baht can't maintain this level. With falling exports, other Asian countries trying to devalue their currencies, a decimated tourist industry, it is hard to see why they want to keep it so high. Or are there some parties benefiting?

This I wonder about ? and given the country's record I would say there are some very interested parties who are very powerful.

[dumball]

Thailand Crisis has the baht rate as a pet topic, he suggests the BOT has been reducing its interventions, also predicts the baht can't maintain this level. With falling exports, other Asian countries trying to devalue their currencies, a decimated tourist industry, it is hard to see why they want to keep it so high. Or are there some parties benefiting?

This I wonder about ? and given the country's record I would say there are some very interested parties who are very powerful.

Face , Face and more Face plus "I know ", "I know " , not good factors to save the nation I am afraid .

[jbaldwin]

The airport was closed for a large part of November (I think that it reopened on 3 Dec). Nothing was airfrieghted out the the country. Not surprising that there was a big drop in reported exports. Expect a large rebound in December as a airport backlog is cleared.

Also the forecast the growth will fall to 2.8% next year does not means that the economy is expected to get worse. It means that the economy is expected to get better at a slower rate

[mommysboy]

The airport was closed for a large part of November (I think that it reopened on 3 Dec). Nothing was airfrieghted out the the country. Not surprising that there was a big drop in reported exports. Expect a large rebound in December as a airport backlog is cleared.

Also the forecast the growth will fall to 2.8% next year does not means that the economy is expected to get worse. It means that the economy is expected to get better at a slower rate

The airport was closed for just one week of Nov. maybe just 5 days. A large rebound is definitely not forecast in fact the next figures may report a bigger drop. I think 30% after another 3 months.

A growth rate of 2.8% is optimistic I think, and in any case is pretty poor for a developing country. My opinion is for a contraction.

Why did you post this?

[Maizefarmer]

I personally do not believe the Baht is going to be able to sustain its strength against these pressures - and certainly not if China is able to adabpt its manufacturing base.

I believe we can expect to see a sharp drop in the value of the Baht sometime over the 3rd and 4th quaters of 2009.

Hang on to your Sterling, Dollars and Euros.

The Baht has been propped up for some unknown reason for many months, exacerbating exporters woes. Why this has been done I have no clue, it makes no financial sense (to the general economy). The problem is that the downturn is going to be long and deep, and when the means to prop up the Baht runs out, as it will, the currency will crash much further than a gradual decline would have taken it.

China has it's own serious problems, maybe bigger problems than anyone else, in fact. They've been caught between a rock and a hard place. Watch this space.

China's continued meteoric growth turned the corner last month - officially - at which point China published figures that were way off those it had been experiancing for the last few years. So yes, I would agree with you: it does indeed have have serious problems, not least of which are the amount of people who have emigrated from the countryside into its cities over the last 5 years or so - a lot of whom are now going to be caught in the urban enviroment (with its cost of living) with no income to support themselves, let alone their families 1000's of miles away in the countryside. Millions of hungary/jobless uneducated peasents in any city are a serious potential social problem for any government!

Thats one differance between Thailand and China: many of Thailands manufacturing labourforce are 2nd generation "urbanites", whereas China's manufactring labourforce is almost all first generation.

Why has the Baht been propped up? There was a rather well written posting by a member on this subject some months back - I don;t recall who it was, but he explained Thailands policy towards intervening in its currency value very well. Its got a lot to do with Thailands fiscal policy over the last decade and a half, during which time Thailand has subscribed to a number of external influences: they have pegged it to the U$D on occassion, at other times the so-called "basket of currencies", and at other times been committed to IMF policy(s).

It's beyond me - leave it someone else to comment, but one thing is certain: whatever propping up is been done, or whatever policy has been followed recently, the mess the $ and Sterling are in was not anticipated - and i dont think has helped one bit either. Lets see what happens in 2009!!

[OlRedEyes]

The airport was closed for a large part of November (I think that it reopened on 3 Dec). Nothing was airfrieghted out the the country. Not surprising that there was a big drop in reported exports. Expect a large rebound in December as a airport backlog is cleared.

Also the forecast the growth will fall to 2.8% next year does not means that the economy is expected to get worse. It means that the economy is expected to get better at a slower rate

If you believe that you are living in a fantasy world. I won't go into details, the subject's too large. All the info is out there. That forecast is pure hope.

[Ricardo]

Thailand Crisis has the baht rate as a pet topic, he suggests the BOT has been reducing its interventions, also predicts the baht can't maintain this level. With falling exports, other Asian countries trying to devalue their currencies, a decimated tourist industry, it is hard to see why they want to keep it so high. Or are there some parties benefiting?

This I wonder about ? and given the country's record I would say there are some very interested parties who are very powerful.

I certainly wouldn't discount this as conspiracy-theory, but surely they will only double their money, as in 1997, once the Baht has floated & then dived like an ex-Russian submarine being towed from Poland to a Thai museum ?

Which naturally will be welcomed also, by all of us on a foreign-income, as well as workers in Thai export-factories & tourism, & agricultural-exporters !

[clausewitz]

The Baht has been propped up for some unknown reason for many months, exacerbating exporters woes.

The baht has plunged in value against major traidng currencies like the yen , but don't let facts get in your way.

[chiang mai]

The Baht has been propped up for some unknown reason for many months, exacerbating exporters woes.

The baht has plunged in value against major traidng currencies like the yen , but don't let facts get in your way.

BOT export loans are USD denominated and exports to the UK/EU are certainly not conducted in YEN hence the OP is correct.

[mommysboy]

The Baht has been propped up for some unknown reason for many months, exacerbating exporters woes.

The baht has plunged in value against major traidng currencies like the yen , but don't let facts get in your way.

To quote it's performance against another very strong currency, then imply there are other major currencies, and then conclude no doubt it is not overvalued is nonsense. 34bt to dollar, 49 to pound ?????, and there are plenty of others just take your pick.

[mommysboy]

In the middle of his very good posting Maizefarmer writes,

"Its got a lot to do with Thailands fiscal policy over the last decade and a half, during which time Thailand has subscribed to a number of external influences: they have pegged it to the U$D on occassion, at other times the so-called "basket of currencies", and at other times been committed to IMF policy(s)."

Says it all really. The BG Plan.

[clausewitz]

The Baht has been propped up for some unknown reason for many months, exacerbating exporters woes.

The baht has plunged in value against major traidng currencies like the yen , but don't let facts get in your way.

BOT export loans are USD denominated and exports to the UK/EU are certainly not conducted in YEN hence the OP is correct.

The top two export partners of Thailand are the USA and Japan. The baht has declined over 40% against the yen in the last year and over 15% against the US dollar .

2008 - American Dollars to 1 THB (invert)

Edited December 24, 2008 by clausewitz

[OlRedEyes]

The Baht has been propped up for some unknown reason for many months, exacerbating exporters woes.

The baht has plunged in value against major traidng currencies like the yen , but don't let facts get in your way.

BOT export loans are USD denominated and exports to the UK/EU are certainly not conducted in YEN hence the OP is correct.

The top two export partners of Thailand are the USA and Japan. The baht has declined over 40% against the yen in the last year and over 15% against the US dollar .

2008 - American Dollars to 1 THB (invert)

Everything has declined against the Yen. Comparing Thailand to the strongest currency is laughable, however much you may dream of Thailand's leading role in world commerce.