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30 Mar 2005

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Disappointing Exports May Worsen 2005 Trade Deficit

International trade over January-February of this year revealed an export slowdown for Thailand coming earlier than expected. During the first two months of 2005, exports were worth a total of USD15.622 billion, rising by 8.1 percent, year-on-year, against the growth of 22 percent in 2004. Evidently, Thailand's exports may be in a downward trend: 16.8 percent in December, 10.9 percent in January and 5.4 percent in February. Contrarily, imports have been on the rise. Data on the first two-months show that imports totaled USD17.488 billion, rising by 27.8 percent, year-on-year which is slightly higher than the growth of 26.6 percent in the previous year. Thus, Thailand posted a trade deficit of USD1.866 billion over the first two months of this year.

So far, surging imports have raised concern among many. However, Kasikorn Research Center (KRC) takes the view that this slowdown in exports is more worrisome. In the midst of slowing demand at home, imports are unlikely to keep growing at the current rate for long. Thus, import deceleration is likely to be seen over the remainder of this year. In addition, it is unlikely that import content by Thai industries can be cut over the short-term. Under these circumstances, overcoming hindrances and problems plaguing the export sector would likely better help alleviate any repercussions to the trade balance, this year.

Looking at Thailand's exports over the first two months of this year, it could be said that the export slowdown in Thailand was in line with other countries in the region. In February, Thailand's exports grew 5.4 percent. According to the preliminary data, exports from East Asian countries expanded around 4 percent. The slowdown could be attributed in part to sluggishness in the global economy and the IT industry. Aside from these woes faced commonly by all countries in the region, Thailand also has its own problems that have dealt a blow to exports. Thai exports that were in a slump recently included agricultural products, food, electronics and electrical appliances. Notably, many factors that made Thai exports slow were beyond our control, such as the problem of shortages in the agricultural sector, the slowdown of the world economy, and the business cycle of the electronics industry. However, to solve the problem of slower exports, may partly depend on the state sector's role in eradicating or relieving obstacles in goods that have problems, one by one. Moreover, it can be observed that there are still many types of goods and certain markets that are showing good trends and such goods need to urgently be promoted to offset inherent problem amid slowing exports to major export destinations and we should quickly expand exports to smaller markets that have high potential, as well as stimulate exporters to increase their exports within FTAs.

KRC expects that the direction of exports over the remainder of the year should get better, especially fishery and livestock goods that are showing better market trends. Meanwhile, many items of industrial goods are still growing healthily, added to demand for electronic products that could be improving. Moreover, export prices are still increasing, and this should help to ameliorate the impact of slowdowns in export volume to some. In the first 2 months of 2005, prices of export goods increased by 6 percent over the same period of last year, and prices in February were still higher than the preceding month by 1.9 percent. Overall, this should enable exports for 2005 to grow around 12 percent. Concerning the trend of the stronger Baht that may raise the prices of Thai goods in USD term, coupled with higher production costs from higher oil prices and for raw materials Thai entrepreneurs will be forced to effectively manage costs and prices of their goods to remain competitive in the world market.

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