Flash Notes
Thailand: December Exports Remain Negative
International trade continued to fall in Dec 2015. Exports fell by 8.7% from the same period last year. For 4Q15, export growthdropped further to -8.1% y/y from -5.3% in the previous quarter. Key reasons remained soft external demand from the weak globaleconomy, plunging oil prices, sharp drops in worldwide prices of agricultural products, and base effects from the front-loading ofexports to the EU in 4Q14 ahead of the expiration of trade privileges in Jan 15. There was a broad-based contraction with agricultureand manufactured goods exports declining as well. As a result, the 2015 export value contracted by 5.8% y/y.
In December, import growth fell by even more than exports to -9.2% y/y, following a similar 9.5% drop in the previous month.
For 4Q15, imports fell to -12.6% y/y from -15.3% in the third quarter. The 2015 import value dropped by 11.0% y/y. The importscontraction largely pointed to weak domestic demand with non-oil imports falling to -5.9% y/y from -3.6%. Meanwhile, the contractionin oil imports continued, albeit at a more moderate pace, at -25.7% y/y from -38.3% in November. Consequently, Thailand achieved atrade surplus of USD 1.5 billion in December and USD 11.7 billion for 2015. Consistent with this, we expect December manufacturingproduction to present a similar pace of contraction as in the previous month since there remained large excess capacity.
Although December international trade remained weak, we expect the Bank of Thailand (BoT) will likely keep the policyrate unchanged at 1.50% in the February MPC meeting because current monetary policy stance should continue to be sufficientlyaccommodative to support the economic recovery, while maintaining long-term economic and financial stability. In 2016, the Thailand’seconomy is expected to gradually recover and to benefit from continued tourism sector expansion, low fuel costs, and acceleration ofpublic investment. The government is running an expansionary fiscal policy in FY2016. The fiscal deficit for FY2016 is forecast to belarger at THB 390 billion (2.9% of GDP) versus an actual outturn of THB 319.6 billion (2.4% of GDP) in FY2015. Capital expenditureshave been raised to 20.0% of total expenditures from 17.5% in FY2015. Moreover, economic stability has been well maintained.
Core inflation remained low in line with the slow recovery of domestic spending. The headline inflation was negative as energy pricescontinued to contract. With the output gap not expected to close until 2017 and global oil and commodity prices set to remain soft,the headline inflation will stay close to the BoT’s inflation target in 2016. Therefore, the limited policy space should be preserved forfuture utilization as there remain downside risks to GDP growth from both external and domestic sources. For now, we maintain ourend-2016 USD/THB forecast of 37.0 representing a 2.7% depreciation over 2015.