Thailand: Export recovery losing momentum - ING

Prakash Sakpal, Economist at ING suggests that they expect the Bank of Thailand to be the next Asian central bank to ease policy with a 25bp policy rate cut to 1.25% before the end of the year.

Key Quotes

“July’s 10.5% YoY export growth was a downside surprise (ING f: 15%, cons: 12%). Thailand’s exports have been among Asia’s underperformers this year and July data reinforces the trend; 8.2% YTD growth is up from 0.5% in 2016 but still the slowest in Asia. Imports were above expected at 18.0% YoY in July (ING f and cons: 14%), causing a huge negative swing in the trade balance to US$188m deficit from US$1.9bn surplus in June.”

“Part of the big positive swing in import growth this year – to +15.4% YoY YTD in July from -4.2% in 2016 – was from higher oil prices early in the year filtering into fuel imports. This was associated with a US$6.7bn YTD narrowing of the trade surplus from a year ago. If monthly exports and imports hold at their year-to-date averages over the remaining months of the year, the full-year 2017 trade surplus will narrow to US$11.5bn from US$21.2bn in 2016. Assuming all of this is transmitted to the current account, this should drag the current account surplus down to about 8% of GDP from 11.4% in 2016.”

“While export-underperformance this year can be partly ascribed to a stronger THB, import strength is at odds with persistent weak domestic spending evident from 2Q GDP data. With the nascent export-led recovery at continued risk of losing momentum the economy needs strong domestic spending to sustain GDP growth above 3%, the average rate since 2010 (3.5% in 1H17). And with ultra-low inflation, the question is whether the Bank of Thailand will be the next one to join the minority of Asian central banks in easing (BI, and RBI). We believe it will, and we now revise our forecasts of BoT policy rates from “on-hold”, to one 25bp rate cut to 1.25% before the end of the year, taking it to the low hit during the global financial crisis.”