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Thai exports to be hit by euro crisis

Publication Date : 12-07-2012

 

The eurozone crisis will continue to be a drag on the global economy for the next few years, with Thai exports taking a direct blow and seeing growth at only a single digit this year, far below the target of 15 per cent, exporters and bankers warned yesterday.

"The EU crunch could be seriously exposed by the middle of next year and affect the global economy badly. Although the US will come out with quantitative easing (QE3) measures, the US dollar will continue to weaken, causing the baht to strengthen and undermine Thai exports," said Sutapa Amornvivat, chief economist of SCB Economic Intelligence Centre.

At a seminar on the "Euro and China economic crises: Impact on Thai shipments", organised by the Federation of Thai Industries (FTI) and Siam Commercial Bank (SCB), the private sector and bankers said Thai shipments will be hard hit by the paralysis in Europe and slowdown in China.

The turmoil will also cause problems for the banking and financing industries, so exporters have to carefully prepare for higher risk.

To drive exports and ensure that each industry will survive, the government needs to provide serious support along many lines, including financial, taxation, rules and regulations, and trade negotiations, exporters said.

Arthit Nanthawithaya, vice president of corporate banking at SCB, said the EU crisis is widening, as it is about sovereign debt structures, which will take time to mend. The slow recovery of the US economy will not be able to prop up global growth and prevent Thai exports from falling.

Sutapa of SCB Economic Intelligence Centre pointed out that the EU crunch would be more serious than the US crisis, which has lingered for more than four years.

The industries that are most exposed to the EU meltdown are apparel, canned food, electronics, computer, jewellery, rubber and machinery.

The slide of the EU will also have a collateral impact on Thai shipments to China. Industries that will suffer the most are plastic, chemical, rubber, electronics, computer and rubber products.

The baht will fluctuate only slightly in the rest of this year, between 30 to 32.5 baht (US$0.94 to $1), against the greenback. Exporters should hedge their orders to guarantee payment.

The Thai economy is also expected to gear down to about 5.6 per cent growth this year, instead of 5.8 per cent as expected, she added.

Manop Sangiambut, head of international banking at SCB, said Thai shipments to China would be tripped up by the sluggishness of its economy, as well as from the lacklustre exports of China to other markets.

China is expected to see its exports slide by 1 per cent this year. The China Purchasing Manager Index also shows that demand for production was below 50 last month, which means that manufacturing in China will continue to slip in the following year.

Somchai Phornchindarak, president of the Thai Gems and Jewellery Traders Association, said jewellery exports have suffered greatly because of the EU chaos.

In the first five months of this year, exports to the EU dropped by 17.4 per cent to $3.2 billion, from $5.4 billion in the same period last year. Thai jewellery's share of the global market has shrunk from 3 per cent last year to 2.6 per cent today.

Not only has the sluggishness of the EU hit Thai jewellery exports, but also the higher competitiveness of rivals and the high tariffs and barriers to imports in Thailand, which obstruct Thai export competitiveness.

The government should permanently waive duties on imported materials and inject funds into SMEs in many industries.

The government should also start free-trade negotiations with the EU and the US under the Trans-Pacific Partnership Agreement to ensure that Thailand will get export privileges to those major markets, he added.

Vallop Vitanakorn, vice chairman of the FTI and adviser to the Thai Garment Manufacturers Association, said companies are struggling to maintain their export growth by setting up plants in neighbouring countries.

Garment exports to the EU were down sharply by 19.9 per cent in the first five months. Shipments to Spain were the hardest hit, plunging by 43 per cent, while exports to the US fell by 10 per cent. The government should help manufacturers in maintaining exports and driving exports to other markets.

Sakda Dumnakkaew, manager of market risk management at SCB, said the EU crunch would create both direct and indirect impacts on the financial and exporting sectors. Exporters should buy forward contracts for doing business with EU countries, as well as with some countries that are at high risk of being impacted hard by the EU crisis.

Ekachai Limpichotipong, vice chairman of the FTI's Rubber Products Industry Club, said producers are trying to compensate for the slowdown in the EU by concentrating more on the domestic market. However, rubber products, mainly tyres, have not yet been salvaged by the EU crunch as the automobile industry has enjoyed strong demand since early this year.

Another seminar said:

At another seminar held by the Economic Reporters Association on "The Euro-Zone crisis and export survival", exporters and bankers expressed concern for regional currencies including the baht.

Phongsak Assakul, president of the Thai Chamber of Commerce, said the expected implementation of the third round of US quantitative easing, or QE3, will send capital flowing into Asia, which will strengthen their currencies. If the baht's exchange rate does not come in line with other currencies in the region, the export sector would be at a big disadvantage.

The euro-zone crisis will take years to end, which will directly affect Thai exports, especially of luxury goods such as gems and jewellery, ornaments and garments. These products are among the priority targets for spending cuts by consumers.

"The Kingdom's export target, which is set to grow by 15 per cent, is hard to achieve. If the government still sticks to the target, it needs to ensure export growth of an average 15 per cent per month through the rest of the year. Successful government measures will allow Thailand to see exports grow more than 10 per cent this year," he said.

Somporn Chitphentom, senior executive vice president of the Export-Import Bank of Thailand, said the EU's economic crunch has not made much of a difference in the country's exports, as delays of payments and payment defaults are still low.

However, the projected launch of QE3 by the US will encourage capital to flow to the region and this will cause the baht to appreciate.

"The bank has warned exporters not to speculate on the baht exchange rate but to think of how to gain from the price of goods. Any mistake from currency speculation will cause a business to collapse," he said.

The bank has launched some assistance measures for exporters, for instance, lowering surcharges and easing risk insurance requirements.

Somchai Pornjindarak, president of the Thai Gems and Jewellery Traders Association, said exporters have run into payment defaults from European importers, which has squeezed their cashflow. They also had to bear losses from exchange rate volatility. This especially applies to SMEs.

 

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