Thailand's trade deficit in July deserves as a reminder that though the economic growth engines are on the wheel, the engines could roll at a slower pace in the second half of this year.
The National Economic and Social Development Board today will reveal the official growth figure for the second quarter. Following the 12 per cent year-on-year growth in the first quarter, most agencies are bullish that the second quarter would be 7-8 per cent and this would push the first-half growth to 10 per cent - the highest in years.
But based on the annual forecasts of many agencies ranging from 3.5-7.6 per cent for the entire 2010, this is the first indication that the second half performance would be less active. HSBC Global, Bank of Thailand, and Thailand Research Development Institute (TDRI) were the most bullish, forecasting the growth over 7 per cent.
Finance Minister Korn Chatikavanij, when citing on Friday that the second quarter GDP could be at least 7 per cent, admitted that there are more challenges in the second half and this reflected through the slowing export growth in July - which resulted in the highest monthly trade deficit in two years at over US$900 million.
Siam Commercial Bank's Economic Intelligence Centre noted that nearly all export categories showed a drop but the trade deficit was not as worrying as it seemed, given that gold imports accounted for US$1.7 billion. Without the gold imports, Thailand would have enjoyed the trade surplus of $700 million. Still, it added that export growth rate would slow down. Export value, excluding gold, expanded 33.7 per cent in the second quarter from 39.5 per cent in the first quarter. In July, the growth rate dropped to 21.9 per cent.
SCB economist Pornthep Jubandhu noted that with the slowing exports, the other two engines - domestic consumption and investment - would not grow largely to match the falling export revenue.
"As the export engine is slowing down in the second half, this convinced us that the GDP this year would be only 3-4 per cent. This indicates a tough time in the second half," he said.
The export sector now contributes 70 per cent of gross domestic product.
However, he anticipated Thailand to further enjoy trade surplus which would further buoy the dollar-baht exchange rate. Like many houses, SCB expects the baht to hit 31 per dollar this year and probably surpass the 30 psychological level next year.
Despite the deficits in July, Thailand's aggregate trade surplus amounted to US$5.4 billion in the first seven months. The Monetary Policy Committee, at the meeting on August 25, is also expected to pay attention to the baht appreciation. While it is expected to raise the policy rate by 25 basis points at the meeting to reign in inflation, the higher rates would only push up the baht value.
According to the Bank of Thailand, Thailand witnessed net capital inflows of US$2.17 billion (Bt70 billion) in June. And more is anticipated to cash in on higher interest rates.
Last week, the Stock Exchange of Thailand Index gained 3.7 per cent from previous week with robust market turnover, driven by continued foreign fund inflow.
Trinity Securities expect fund to continue flowing into Thailand to enjoy the Thai Baht appreciation.
"Thai baht strengthened 2.36 per cent in this month when compared to US dollar. However, expectation of interest rate raise on August 25 would continue prompting Thai bath to appreciate further in our view," said the house's executive director Vajiralux Sanglerdsillapachai.
Table: GDP forecasts
Agency/2010 /2011
BOT/6.5-7.5 (revised from 4.3-5.8)/3-5
NESDB/3.5-4.5/na
Finance Ministry/3.5-4.5/na
DBS /8/na
HSBC 7.6/5.3
Siam Commercial Bank/3-4/na
Trinity Securities/7/na
TDRI/6.4-7.1/3.5-7.1
Source: The Nation