Economic activity sluggish in September
The Nation – 4 November 2008
Thailand's data for September shows economic activity is moderating as global headwinds intensify and political uncertainty rises, says a new JP Morgan Asia-Pacific Equity Research report.
Domestic demand was mixed, with private investment flat for the month and private consumption edging up, said the report, released yesterday.
On a sequential-trend basis, both private investment and consumption rose, but that was more likely due to payback from weakness in the second quarter than any sustainable improvement in domestic demand.
Lower energy and food prices should provide some relief to consumers, and the Business Sentiment Index rose slightly to 41 points, from 40.7 in August. But developments in the global economy and on the domestic political front should have a larger effect on economic activity in coming months:
lOn a more positive note, the trade balance moved back into surplus for the first time in three months. However, the outlook for external demand is becoming more clouded. Similar to other countries in the region, Thai exports weakened in September. Import demand was also down, which is consistent with the sluggish domestic demand picture.
With global headwinds rising from weakening G-3 and emerging markets, demand, intellectual property (IP) and export growth will likely soften.
lDespite the turnaround in the trade balance, the current account remained in deficit. These two balances usually move in similar fashion. Possibly, weaker tourism arrivals from the political aggravation may have hurt the current-account balance in September. Private consumption rose 0.3 per cent month on month and 16.2 per cent quarter on quarter in September, versus 12 per cent in August. The Private-Investment Indicator Index fell 0.1 per cent month on month but rose 1 per cent quarter on quarter after contracting in the five previous months.
lThailand's external balances improved in September even though export and import growth were weak during the month. Exports fell 2.4 per cent month on month and moderated to 5.3 per cent quarter on quarter. Imports fell 2 per cent month on month but accelerated 66 per cent quarter on quarter.
Despite poor export performance, the trade balance shifted into a modest surplus of US$140 million (Bt4.89 billion), against a deficit in previous months.
The balance-of-payments balance also shifted to a notable surplus, on account of a pick-up in capital inflows.
We are surprised by the increase in capital inflows, given the general risk aversion in emerging markets, but the balance-of-payments data do fit nicely with the increase in reserves reported over the month. In terms of production, IP fell 3.4 per cent month on month and slowed on a sequential-trend basis to 8.6 per cent quarter on quarter.
This slowdown is in line with other IP readings from around the region and coincides with a further slide in the capacity-use rate to 68.2 per cent, from 70.5 per cent in August. The capacity-use rate has fallen steadily since peaking at 78.1 per cent in March. With slowing global growth and continuing political uncertainty weighing on economic activity, we expect IP to slow further in the coming months.
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