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13 Mar 2020

Thai Economy

WHO upgrades COVID-19 to global pandemic; effects to be felt in Thai exports (Current Issue No.3091)


The outbreak of the Corona Virus Disease 2019 (COVID-19) has spread across the world to the extent that the World Health Organization (WHO) has raised its status to that of a pandemic, which has caused the global market to decline even further. This has generated even greater risk for Thai businesses that are reliant on exports in the ensuing period, as follows:

  1. Thai businesses that rely on exports to foreign countries must prepare themselves to cope with a stagnating world market. Depending on how much they rely on the US, the European Union (EU) and the Japanese market, these groups can be categorized into 1.1) Groups that have already been affected and are on the road to recovery in line with China are groups that rely primarily on exports to China and the production of intermediate goods such as plastic pellets, textile fibers as well as local fruits. 1.2) Groups that must prepare for the impact of the next wave are groups that mainly rely on exports to the US, the EU and Japan. These markets are facing large-scale outbreaks. Thai products of great concern are under the categories of processed chicken, processed seafood, intermediate electronics and final goods. 1.3) Groups that receive relatively high impact since the beginning of the COVID-19 outbreak and may continue to be affected until everything has settled. These groups rely, by large proportion, on exports to China, the US, the EU and Japan; and are thus bearing the burdens of markets undergoing secular stagnation. These groups include processed shrimps, canned vegetables, printed circuit board (PCB), electrical appliance parts, vehicle tires, mattresses and so forth.
  2.  Businesses that rely on the market in Thailand may need to prepare themselves to cope with a continuously stagnating economy. The second quarter may be heavily influenced by external economic factors that place pressure on the domestic market and weaken it even further. 2.1) Groups that primarily utilize raw materials in Thailand such as those in food, beverage and agricultural products. While it is still possible to reap profit from the market, the stagnation within the country from combating the virus may aggravate the woes of the Thai agricultural sector to a greater scale this year. 2.2) Groups that rely on raw materials/ imported goods from overseas can gradually return to manufacturing in sync with the recovery of China. Though producing or importing goods for sales and distribution remains regular, market conditions are not supportive of business wealth. Thus, working capital is required to help sustain them for continuance until everything reverts back to its prior status.

         Therefore, a stagnant market is the biggest issue that Thai businesses must face from here onwards. For, regardless of where the products are sent, it will be difficult for them to market their products. Conversely, businesses that revolve around food, beverage, cleaning products, goods used in everyday life and the raw materials needed for their productions can all be expected to grow amid this crisis. On the other hand, businesses concerning other goods that are unlikely to be in demand over the next three to six months will have to accept the prevailing global circumstances and patiently wait for everything to return to its normal state. Example of such businesses includes electrical appliances, some electronic devices, vehicles, furniture pieces and sport equipment.

         In addition, China's recovery has made it the only country with sufficient potential to rescue the world's economy from this virus crisis. This can be seen from the sharp rise in Chinese exports in the medical supplies category. This will, in turn, benefit exports from Thailand to China by improving the status of  intermediate goods that could provide support to such productions in China, especially that of rubber, synthetic fibers, plastic pellets and chemicals. This will also include goods under the category of food and other local products, which are likely to make a significant recovery whether it be Thai fruits or medical equipment and medical gloves to mention a few.

         Even if exports to China started to recover in the second quarter of 2020, it will likely be insufficient to restore vigor to the overall image of Thai's exports to China in this year as China's purchasing power is likely to remain weak throughout the remaining months. Therefore, KResearch anticipates that Thai exports to China for 2020 will be no different from the prior estimated contraction of 6-9 percent. Relying solely on the Chinese market is unlikely to immediately restore Thailand and save it from its exports crisis. KResearch maintains its view that Thai exports for 2020 will suffer a contraction of 5.6 percent.

Thai Economy