Market braces for US trouble

Commerce Minister Krirk-krai Jirapaet yesterday predicted amid fears of a painful US recession that Thai export growth would be adversely affected this year.

He said this would be despite the fact that the US market now accounted for a smaller proportion of overall Thai exports.

 Krirk-krai warned Thai exporters to monitor the market closely and strive to promote export growth, because Americans still had high purchasing power.

US Federal Reserve Chairman Ben Bernanke orchestrated a steep cut in US interest rates only a week before a scheduled Fed policy meeting, heightening fears a painful recession was imminent for the world's largest economy.

The US share used to account for 25 per cent of Thai exports, but that figure dropped to 12.6 per cent last year. The trend suggests the US share should drop further, because Thai exporters have diversified to other markets.

Krirk-krai also reaffirmed that Thailand's exports this year were expected to achieve their 10-per-cent growth target and reach US$167 billion (Bt5.54 trillion), thanks to attempts to diversify foreign markets. To achieve the minimum target of 10-per-cent growth this year, the Kingdom's exports should reach $13.5 billion a month.

"The US central bank cut its base short-term interest rate 75 basis points, and this is a good attempt to boost its economic growth. However, it may not be enough to stimulate private consumption. Thus, Thai exporters should closely monitor the next moves, in order to capture opportunities in this market," said Krirk-krai.

He suggested that Thai exporters concentrate on the upper-income market by producing high-quality products.

National Federation of Thai Textile Industries president Chen Namchaisiri said the Thai textile and garment industry would closely monitor whether the Fed rate cut would help avert a US economic slump. He echoed Krirk-krai's view that export diversification was the key.

"That strategy will reduce Thai exporters' risks if US economic woes become worse and diminish US purchasing power," Chen said, adding that currently, Asean was also a major export market now.

Thailand Development Research Institute research director Somchai Jitsuchon said that the Fed's steep rate cut indicated a worse-than-expected slowdown in the US economy. While the problem has already hit the Stock Exchange of Thailand, the export sector could be the next to hurt, following lower demand.

He said Thai export growth could be less than 10 per cent this year.

Finance Minister Chalongphob Sussangkarn yesterday said there was no need for emergency measures after the slump in the stock exchange over the past two days.

He believes the Thai and regional exchanges will react positively to the US Federal Reserve Board's decision to slash its benchmark rate 75 basis points.

"The cut is deeper than expected," he said. "This is a positive sign, because the rate cut will send a positive impact to global financial markets and shows the Fed's readiness to tackle the problems at home. But in Thailand, we need no urgent meeting on emergency measures. The Thai exchange and the baht will move in line with regional movements."

Thiti Tantikulanan, head of capital markets at Kasikornbank, said his bank predicted the US Fed Fund might possibly cut its rate a further 50 basis points this month after being cut 75 basis points yesterday.

As a result, the US policy rate this month is expected to be reduced a total of 125 basis points. The heavy rate cut could manage the country's crisis caused by sub-prime mortgage lending and would help relieve the US economic problem.

"The heavy rate cut will help the US economy make a soft landing and prevent an economic recession. If the spread between the US rate and Thai policy signal rate stands at 25 basis points, it won't affect foreign capital flow significantly," Thiti said, adding that Thailand's one-day repurchase rate was now 3.25 per cent.

However, foreign capital will shift investment from risky assets to safe ones. Thus, it is possible to move into Asian markets in both bonds and stocks. Along with the US dollar weakening, that would lead to appreciation of the baht.

Kasikornbank estimates the baht will grow stronger, reaching 31.50/32 against the greenback this year, Thiti said.

Siam Commercial Bank executive vice president Veerathai Santiprabhob said the US Federal Reserve would probably cut its policy rate a further 50 basis points like the market has forecast. However, with the grey picture right now, it is difficult to predict the timing of its rate cut.

Following economic principles for a normal situation, the interest-rate move would show results over the next six to twelve months. But in the current US situation, this is hard to predict, because the Federal Reserve is possibly implementing any methods needed to stop people from panicking, he said.

Business Reporters

The Nation