Tiger Economy Loses Its Roar as Thailand’s Exports Slump

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Thailand Exports
Shipping containers stand at the port at Laem Chabang, Thailand. The country has been losing its export competitiveness in electronics in the last three years. Photographer: Dario Pignatelli/Bloomberg

Thailand is heading for a second straight year of slumping exports, something the onetime tiger economy hasn’t experienced in at least two decades and a loss that magnifies challenges for the military-run government.

Shipments abroad, which make up the equivalent of about 70 percent of the economy, have shrunk in six out of nine months this year and will probably contract in 2014, according to the central bank. That’s in comparison to an annual average pace of growth of about 13 percent in the period 2002 to 2012.

While Thailand has grappled with political instability and record flooding in recent years, rivals including Vietnam and the Philippines have seen exports climb. Investment proposals for infrastructure have been delayed for months by violent unrest that ended when Prayuth Chan-Ocha, the former military chief, seized power in a May coup.

“It’s possible that exports will lag behind other countries in the region like Vietnam, Malaysia and the Philippines which used to trail us in the past,” said Santitarn Satirathai, a Singapore-based economist at Credit Suisse Group AG. “We have obsolete technology and other structural problems that we must fix. The question is, can Thailand do enough to keep attracting foreign and domestic investment. It is quite worrisome.”

Gross domestic product expanded 0.6 percent in the three months through September from a year earlier, the National Economic and Social Development Board said in Bangkok today. That is slower than a median estimate of 1 percent in a Bloomberg News survey. The economy grew 1.1 percent from the second quarter, compared with a median estimate of 1.5 percent.

Innovation Slide

The economy is forecast to grow this year at the slowest pace since 2011, when thousands of factories were inundated by the worst floods in 70 years. The NESDB today said it expects GDP growth of 1 percent for the full year.

Thailand has been losing its export competitiveness in electronics in the last three years, especially in the manufacture of hard disk drives as companies failed to adjust production to meet shifts in consumer preferences, the central bank said in a report in June. Investment in research and development has lagged that of countries such as Singapore, Malaysia and Indonesia, while local firms have invested more overseas because of tax incentives and higher wages, it said.

Thailand’s ranking for innovation in the World Economic Forum’s Global Competitiveness Index fell to 67 in 2014 from 33 in 2007, even as the Philippines, Indonesia and Malaysia rose.

Electronics, which made up 14 percent of total Thai exports in 2013, have risen 3.8 percent so far this year compared with an increase of almost 10 percent in 2007.

Production Hub

“Thailand positioned itself as a production hub for hard disk drives for so long, but didn’t do anything to get foreign companies to invest in modern technology,” said Thanomsri Fongarunrung, an economist at Phatra Securities Pcl in Bangkok. “Demand for PCs has fallen with increased demand for smartphones, and we never fully recovered the share lost to other markets after the 2011 floods.”

The NESDB today said export value this year will probably be flat, and that it expects the value to grow 4 percent next year. The economy may expand 3.5 percent to 4.5 percent in 2015, the agency said.

The monetary authority kept its policy rate unchanged at 2 percent earlier this month, and Governor Prasarn Trairatvorakul said last week that while the current rate is accommodative for growth, it can be eased further if the economy fails to recover.

“The soft 3Q GDP print raises the odds of a more dovish monetary policy statement,” said Weiwen Ng, a Singapore-based economist at Australia & New Zealand Banking Group Ltd. “If this sluggish pace of growth persists, the window for easing could potentially be opened,” he said, adding that exports aren’t likely to provide a material boost to growth.

Still Interested

The Thai baht was little changed at 32.786 against the U.S dollar as of 10:34 a.m. in Bangkok. It has slipped almost 3 percent against the U.S. dollar in the past three months.

The government has unveiled a stimulus package of about $11 billion to provide cash handouts to farmers and pledged to accelerate budget spending to boost consumption. The finance ministry last month cut its GDP growth forecast for the year to 1.4 percent.

Foreign direct investment applications approved from January to October fell 38 percent from a year earlier, according to the Board of Investment.

“I have met with executives of big corporations, and they are still interested in investing here for exports,” said Supant Mongkolsuthree, chairman of the Federation of Thai Industries, an association of manufacturers. “With the government’s increased spending on infrastructure, we expect more investments from foreign companies in the future.”

Thailand will need to do more to attract investors, as there are other options in the region now, said Thanomsri.

“We have to add value and make ourselves attractive as there are many competitors now,” said Thanomsri. “We need to give more incentives, solve the problems with labor and infrastructure. We can’t just sit here and wait for investors to choose us.”

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