EIC: US-China wrangling to cut exports
Rising risk factors to dampen 2019 GDP
The deepening US-Sino trade dispute is expected to deal a heavy blow to Thailand’s exports next year, with growth cooling to 4.7% from this year’s forecast of 8.5%, says Siam Commercial Bank’s research house, the Economic Intelligence Center (EIC).
The bitter trade row between the world’s top two economies will be a major risk hurting Thai exports in 2019, as the spat may drag global trade growth to 4.7% next year from 5% this year, said chief economist Yunyong Thaicharoen.
The risk could pose a threat to the economic growth of some of Thailand’s trade partners, representing 88% of the country’s export volume, he said. Rising oil prices are also expected to deter Thailand’s outbound shipment growth in 2019.
Amid the escalating risks, EIC predicted Thailand’s economic growth would come in at a slower pace of 4% next year than 4.5% forecast for this year, while export and tourism sectors remain the growth engine for the remainder of this year and next, Mr Yunyong said.
EIC earlier projected this year’s growth would be 4.3%.
Mr Yunyong said the high-base effect is part of why there will be lower growth next year.
The country’s private i nvestment growth rate is expected to improve to 4% next year from 3% this year after sluggishness over the past several years, on the back of higher imports of durable goods and rising capacity utilisation.
Thailand’s general election, expected next year, should help boost private sector confidence, Mr Yunyong said.
“The election will also support state investment,” he said. “Several infrastructure projects have already been kick-started and will continue into next year. The new government’s policies are expected to come to life from 2020.”
Thailand’s upward interest rate cycle is just around the corner, he said, and the first hike is expected at late this year as the earliest, depending on timing when the Monetary Policy Committee (MPC) believes that the average 2018 headline inflation will stay within the target range, set at 1-4%.
However, the rate is expected to be lifted at a gradual pace, assuming that the high debt-to-income ratio and the lower headline inflation will be worked past, he said.
Bank of Thailand governor Veerathai Santiprabhob recently reaffirmed that ultra-loose monetary policy is nearing an end, but he said raising interest rates to some extent does not indicate a sudden reversal of monetary policy.
The EIC expects the MPC to raise the policy rate twice in the first half of 2019, at a quarter-point hike each time, so that the higher rate will not significantly affect the overall economic growth and inflation momentum.
Moreover, the MPC is likely to use additional macro-prudential measures to address pockets of vulnerability that could threaten financial stability. Subsequent rate paths will depend on the resulting economic data and future MPC communications.
Although Thailand’s strong external stability and ample liquidity in the Thai financial market could cushion against short-term volatility and tighten global financial conditions, all parties, especially households, with floating-rate debt and businesses with relatively high leverage should prepare and manage possible risks associated with the rapid increase of fund costs (or yield snapbacks) and roll-over risks, Mr Yunyong said.
In a related development, Jeeranun Hirunyasumlith, commercial consul in Shanghai, said the escalating trade dispute between China and the US will definitely slow the world economy
She said many countries are cautious about the impact and are seeking new trade partners while looking to relocate their factories.
“Thai intermediate goods like electronic parts, computer parts, electrical circuits and LCD screens bound for China may be the hardest hit next year,” she said. “But we also foresee a positive impact for higher shipments of agricultural products, fresh and frozen fruits, rice and frozen seafood.”
The spat may drag global trade growth to 4.7% next year from 5% this year. YUNYONG THAICHAROEN Chief economist, EIC