Thailand should witness a moderate effect from the reduced global activity compared with other emerging Asian economies thanks to the moderate correlation to global growth, according to a research by Barclays Capital.
Thailand’s correlation to global growth was 48.8 per cent, putting it in fifth place among nine economies listed in the research titled “Emerging Asia: Who Is Most Leveraged to Global Growth?” The research shows the nature and time period of shocks that could filter through the economies, with the analysis of growth correlation and trade openness.
The good news is that Thailand’s exports are reasonably diversified across automotive products, computer peripherals (monitors, hard drives), petrochemicals and food. However, as trade openness is 135 per cent of gross domestic product, the Kingdom is not immune to global shocks. Thailand should feel the initial shock one or two quarters later, and the impact would be felt for eight quarters, Barclays said.
“Our analysis indicates that export-oriented economies that are relatively less diversified are the most leveraged to a potential slowdown in global activity. This is largely due to the nature of their trade sectors, as well as their degree of openness.”
Among Taiwan, Singapore, the Philippines, Malaysia, mainland China, India, Indonesia, Thailand and South Korea, Taiwan is the most leveraged or the most exposed. Barclays said Taiwan was less diversified than its regional peers. Its exports centred largely on electronics, LCDs (liquid-crystal displays) and semiconductors. Taiwan produces mainly low-margin intermediate components, not end-use products.
Despite 394 per cent of GDP in trade openness, Singapore’s impact is mitigated by trade flows and industrial production that is much diversified.
The Philippines is significantly less diversified. The main area of specialisation is electronics (and in lower-margin testing and assembly activity, not production), which results in electronics accounting for 70 per cent of exports.
Malaysia is reasonably diversified across mineral fuels, palm oil, petrochemicals and electronics, but high trade openness (177 per cent of GDP) means Malaysia is leveraged to global cycles.
“We find that Taiwan, Singa-pore, Philippines and Malaysia are the economies most leveraged to global growth,” Barclays said. “Higher leverage implies a faster transmission of external growth shocks into domestic demand and employment conditions. The initial impact can be seen through a reaction in exports within zero to two quarters.
“We also find export-oriented economies that are relatively less diversified tend to be more leveraged to the global growth cycle. Singapore and Malaysia are among the most open economies in the world and could see a faster transmission.
“Korea’s high investment in brand premium allows it to gain market share even in declining markets, and this has reduced the economy’s dependence on external demand.
“Contrary to widespread belief, we believe Korea’s resilience to global growth shocks has increased. This reflects strong domestic demand, a well-diversified export sector and the rising ‘brand premium’ of its manufactured goods.
“On the other hand, we believe the economies of Indonesia, India and China would likely see the least impact from reduced global activity. Reasonably well-diversified export sectors and strong domestic activity are likely to provide the necessary cushions in case there is a synchronised slowdown in global growth.
“China, India and Indonesia will be mainly shielded by low openness, at 49, 35, 48 per cent, respectively.
“There are perhaps two main reasons why their correlation to global growth has come down in the recent years. First, domestic demand in China, India and Indonesia has become increasingly important for growth in recent years.
“For instance, private consumption in India has consistently provided a large chunk of growth since early 2000, and we would expect it to remain unaffected by any sharp slowdown in global growth. Further, India’s export sector has performed much better than its regional peers recently, largely on the back of a well-diversified product and end-market breakdown,” Barclays said.