Risks to auto supply chains flagged

Economy February 08, 2019 01:00

By The Nation

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A TOP planning agency has expressed concerns for the impact on Thailand from disruptions to vehicle supply chains arising from the prospect of a flare-up in the trade war between the US and China.


 The National Economic and Social Development Board (NESDB), in keeping tabs on the superpowers’ dispute, flagged the risk that the United States could, in the next three months, impose its threatened tariff increases on automobiles imported from China. Such an action could broadly affect automobile supply chains, Thossaporn Sirisamphan, the NESDB secretary-general, said.

Thossaporn said that the board has been monitoring the trade war and, based on US President Donald Trump's recent statements, the conflict will likely be prolonged.

The concern is that, within months, the US Commerce Ministry will prepare its review on the automobile industry and if it deems that it has been threatened or affected, more trade retaliation could be directed to China, Thossaporn said. That spells a renewed risk to associated industries in the automobile supply chains worldwide, he said.

He said that NESDB has been monitoring this dispute closely, while attempting to provide guidance for the private sector on the risks that loom.

Chen Namchaisiri, an adviser to the Federation of Thai Industries (FTI), said that the trade war, Britain’s exit from the European Union and Trump's proposed wall on the Mexican border have been affecting the Thai private sector. Chen also cited the baht’s appreciation as hurting businesses.

 The trade war has been putting the global economy at risk and if it drags down Chinese economic growth to less than 6 per cent a year, the volume of global trade will be reduced.

If the United Kingdom leaves the European Union without an exit deal, there will be risks to the economies of the UK and the Europe due to a large number of their connected businesses and transactions as well as to the global economy, Chen said.

The US Congress has been unable to reach a legislative solution to funding border security, resolving immigration issues and funding Trump's campaign promise of building the wall. “The impasse could again lead to another government shutdown. On the domestic front, the stronger baht has affected exporters,” Chen said.

"The trade war has generated more impacts to Thai business operators. Despite orders having been received from China over earlier previous periods, the impacts will be felt later if China is unable to export products and then Chinese orders will be cancelled

“Now, Thailand is adjusting its manufacturing to produce more diverse products with higher quality. But the problem is the sharp appreciation of the baht to 31 per US dollar.”

Chatchai Payuhanaveechai, the president of Government Savings Bank, said that a decision by the Bank of Thailand's Monetary Policy Committee to leave the policy rate unchanged at its last meeting could prevent further baht appreciation.

Even though the prospects for exports may not be so bright this year, there are signals that tourism is increasing, and the bank expects economic growth will be 4 per cent this year. Growth would be constrained by the trade war, Chatchai said.

Somprawin Manprasert, executive vice president at Bank of Ayudhya, said that the economy is believed to be facing pressures from strains in the global economy and is forecast to grow 4.1 per cent this year. Export growth is tipped at 4.5 per cent amid the global economic slowdown, lower purchasing power and a withdrawal of investment.

Prinn Panitchpakdi, chief of CLSA Securities (Thailand), said that the baht’s level now does not reflect the country's economic structure and the currency should have posted stronger gains.

In the long term, the baht should appreciate to 25-28 per to the US dollar; market intervention had kept it from reaching those levels, he said, suggesting that exporters should not rely on the baht for their competitiveness. They should, rather, improve product quality, penetrate new markets and target groups of customers, he said.

Banjongjit Angsusingh, director-general of Department of International Trade, said that the Ministry of Commerce is targeting export growth of 8 per cent. The department plans to promote the country’s export, highlighting quality, standards and value-added dimensions, but it also wants business operators to expand their investment overseas.

Thanavath Phonvichai, director of University of the Thai Chamber of Commerce's Centre for Economic and Business Forecasting, expects that small and medium-sized enterprises (SMEs) will improve as a result of increased crop prices and tourism in light of the encouraging US-China trade negotiations and a likely improvement in the Thai economy after the election.

 “We are confident that SMEs will gain from these positive factors, which could support this year's economy,” he said. “We forecast this year's GDP (gross domestic product) to expand 4-4.2 per cent. SMEs will likely grow more, in the range of 4.5-5 per cent, due partly to last year's low base.”