THAILAND’S exports could face new constraints if the vote by United Kingdom citizens to leave the European Union disrupts the continent’s supply chain and has spillover impacts on China, according to Kasikornbank.
These are among a series of uncertainties the sector is facing, which range from politics at home to global financial-market volatility.
While unveiling the bank’s export-growth forecast of zero to minus-2 per cent for 2016, Kobsidthi Silpachai, head of markets and economic research at KBank, warned that if the result of last month’s “Brexit” referendum disrupted the EU’s supply chain, that would affect China, which has built up a large exposure to Europe. In that case, Thailand would not be spared, he said.
What remain to be seen are the new British prime minister’s policies, he said. If they do not receive a positive response from the global market, that could pose new uncertainties.
More than 10 per cent of exports from Thailand go to China. Thailand also sends 11 per cent of its shipments to the EU and 1 per cent to the UK. The export sector contributes 70 per cent to Thailand’s gross domestic product.
Siwat Luangsomboon, research chief at Kasikorn Research Centre, said that before Brexit, the centre forecast a 3-per-cent contraction in exports to the UK and a 0.5-per-cent decline in shipments to the EU. After the referendum, the contraction forecast was raised to 6-9 per cent for the UK market and 3-4 per cent for the EU.
“The frozen-seafood industry will be highly affected. Though some companies have production bases in the EU, Thailand remains a large production base. And this would hurt the supply chain in Thailand,” he said.
However, he said that Thailand, facing high barriers to entering the EU market, stood a chance to boost frozen-seafood exports to the UK at a later stage.
Kobsidthi said another uncertainty would prevail when the yuan officially becomes a reserve currency this October. Before that happens, China may devalue its currency, leading to greater volatility in other Asian currencies and Thailand’s exports.
He believes the baht could weaken to 36 per US dollar this quarter. It could further weaken to 37 by the end of the year if the draft constitution is rejected at the August 7 referendum, or hit 36.20 in the case of a positive response.
As the dollar is strong while the United States heads towards a presidential election in November, the Federal Reserve Board is not expected to raise its key interest rate soon, he said. At this juncture, short-term capital inflows to emerging markets are expected.
Year to date, foreign inflows to Bank of Thailand bonds are valued at Bt130 billion.