OVERVIEW

● January’s export growth fell to a 30-month low of -5.6% YoY (Dec: -1.7%), far lower than Reuters’s consensus estimate of -1.0%. On a MoM basis, it contracted by 2.0% (Dec: -8.7%). Apart from a higher base a year ago, the steep YoY drop was mainly due to a decrease in exports to regional peers, particularly for principle manufacturing goods.

● By product, wider contraction in shipments of manufacturing, minerals and agro industrial goods have outweighed smaller fall in shipments of agricultural products. Manufacturing exports fell sharply by 5.9% YoY (Dec: -0.8%), accounting for 4.6 percentage points (ppt) drop of overall export growth, on lower exports of electronics and automotive goods.

● From a destination perspective, excluding the US, demand for Thailand’s exports weakened across the board, dragged mainly by its regional peers, mainly due to negative spillovers from the ongoing US-China trade war as well as Thai Baht’s strength. China recorded the largest negative contribution to export growth (-16.7% YoY; -2.0 ppt), followed by the ASEAN-5 (-7.4%; -1.5 ppt) and Hong Kong (-15.3%; -1.1 ppt). These have outweighed improvement in shipments to the US (8.3%; +0.9 ppt).

● Imports recorded a sharp turnaround of 14.0% YoY, smashing Reuters’s consensus estimate of -1.0%, after a brief contraction of 8.1% in the previous month. The swing in imports was almost solely driven by a record-high surge in imports of arms and munitions (4,832%; 10.3 ppt), in relation to the 11-days Cobra Gold military exercise, participated by forces from various countries, including the US, which concluded on the 22nd of February. We foresee import growth to return to a more moderate level next month, as the one-off factor fades.

● Trade deficit widened to near 6-year high. Following wider margin in the increase of imports relative to the fall in exports, the trade balance flipped to record a deficit of USD4.0b, marking its largest deficit since April 2013.

● Overall, we expect export growth in 2019 to ease to 4.5-5.5% (2018: 6.7%) on escalating expectation of economic slowdown in key export markets including China and the US, due to the structural rebalancing and negative spillovers from the US-China trade war for the former, and unwinding of fiscal stimulus for the latter. This bearish outlook has already been manifested in firms’ cautious stance on demand prospects, as evidenced by the IHS Markit PMI report, which cited Thai manufacturers’ unwillingness to hire more workers and build up inventories.

Source: Kenanga Research - 25 Feb 2019