● Exports worsened in June, registeringitssteepestcontraction since July 2009 (-23.2% YoY; consensus: -15.5%; May: -22.5%), partly due to a high base effect.

● By product, the deeper contraction was attributable to a negative turnaround in shipments of agricultural goods

− Agricultural(-15.8%; May: 14.1%): largest decline in nearly four years due to softer growth in shipments of fresh fruit (24.8%; May: 192.3%) and block rubber (-72.8%; May: -56.3%), as production was hit by the drought condition and as automotiverelated demand remained depressed.

● By destination, weaker demand was observed amongthe regional peers, offsetting slight improvement in demand from the advanced economies

− The fall was steered by the ASEAN-5 (-38.8%; May: -27.9%) and Hong Kong (-32.3%; May: -19.3%).

● Imports marked a softer decline in June (-18.1%; consensus: -16.7%; May: -34.4%)

− Led by a smaller fall in imports of fuel lubricants (-30.6%; May: -70.0%) and capital goods (-8.2%; May: -25.2%), amid a recovery in oil prices and gradual resumption of factory operations.

● Trade balance narrowed to a three-month low(USD1.6b; May: USD2.7b) as imports expanded (9.2%) more than exports (1.0%) on a MoM basis.

● We retain our 2020 export growth forecast range (-10.0 to -5.0%; YTD: -7.1%; 2019: -2.8%)

− The MoM expansion in exports signalled that a recovery in external demand has already taken place. While we expect this to continue, the degree of improvement would be partially limited by growing worries over recent resurgence of COVID-19 cases in major economies, which may trigger a retightening of lockdown measures in affected areas, and the escalatingUSChina trade tension.

− Nonetheless, given theBoT’s less dovish monetary policy statement and signs of improved economic activities domestically, we expect the policy rate to be kept at 0.50% for now, preserving the limited policy space.

Source: Kenanga Research - 27 Jul 2020