K-Research: Export growth to reduce speed in 2018

Despite 2017’s upbeat growth prospects, exports are tipped to expand at a slower pace next year because of volatile crop prices and rising geopolitical tensions hitting global trade, says Kasikorn Research Center (K-Research).

The continued price volatility of agricultural products, which account for 20% of exports, is likely to take a toll on 2018’s export outlook, said K-Research managing director Charl Kengchon.

Geopolitical tensions in the Korean Peninsula over North Korea’s missile tests could derail global trade growth, subsequently hurting Thai exports, Mr Charl said.

K-Research’s assessment is based on the latest economic forecast made by the Bank of Thailand, he said without revealing the research house’s economic projection, which will be released today.

The central bank predicts Thailand’s economy to expand by 3.8% next year with export growth of 3.2%.

As of Sept 21, K-Research was anticipating full-year GDP growth of 3.4% in 2017, with 7% export growth.

Exports, a key driver of Thailand’s economic growth, grew by 8.9% year-on-year in the first eight months of 2017, while imports rose by 15.4%, said Commerce Minister Apiradi Tantraporn.

But the 8.9% figure is lower than the export growth of Taiwan (12.9%), South Korea (16.4%), Indonesia (17.7%) and Vietnam (19.6%), Mr Charl said.

Thailand’s GDP growth in the second half of 2017 and the whole of 2018 is expected to continue with support from public and private investment growth.

The economy is expanding at the fastest pace in more than four years, led by a surge in farming output and tourism.

GDP rose 3.7% year-on-year in the second quarter after expanding 3.3% in the first quarter, according to the National Economic and Social Development Board.

Mr Charl said Thailand has two big issues to monitor closely: the general election, which is scheduled to occur in 2018’s fourth quarter, and the Eastern Economic Corridor, which is expected to boost economic growth through increased private investment and consumption.

Factors that could still put pressure on the country’s economic growth include the impact of rising labour costs and the insufficient number of skilled labourers.

The prevailing belief, however, is that companies will adopt technological innovations to replace labourers in the future, Mr Charl said.

Other factors denting the country’s growth prospects are household debt, which is keeping a lid on private consumption and consumer spending, as well as banks’ ebbing loan quality and the higherrate environment spearheaded by the US Federal Reserve.

With the upward trend in interest rates, the Fed is expected to hike its fed funds rate one more time this year and twice in 2018, while the Bank of England is likely to gradually raise interest rates from the current 0.25% to 1% next year, Mr Charl said.

The Bank of Thailand could also normalise its policy interest rate in late 2018, he said.

But the European Central Bank and the Bank of Japan are expected to stand pat on their policy interest rates to lend support to gradual economic recovery, Mr Charl said.

“The global interest rate hiking cycle will cause credit problems for many countries that have been raising funds from the bond market, as lending costs will increase,” he said.