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Factories slump as trade war (and) politics take toll 

Jun 25. 2019
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By   THE NATION

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THE superpowers’ trade war has weighed down the country’s manufacturing industry, with a key gauge of activity dropping last month by the most in almost three-and-a-half years. 

The 3.99 per cent fall in the Manufacturing Production Index (MPI) in May was also blamed on political uncertainties. The delays to the formation of a new government are said to have hurt the investment environment and damaged foreign investors’ confidence.

Nattapol Rangsitpol, director-general of the Office of Industrial Economics (OIE), said that the MPI’s plunge was the sharpest year on year since January 2013.

The US-China trade war has driven down global exports by 1.01 per cent from November 2018 to April 2019.

The MPI for June is forecast to decline on the back of a 6.1 per cent decrease in imports of capital goods in May and a 2.3 per cent drop in imports of raw materials and semi-raw materials (excluding gold) that month.

The protracted negotiations for a government to be formed have prompted an investment slowdown in Thailand as investors are in the dark about the direction of government policy.

In the previous month, the OIE has revised down its targeted expansion of the MPI to 2 per cent from an earlier estimate of 2.5 per cent, and its targeted growth for industrial GDP (gross domestic product) to 1.5-2.5 per cent from a previous call of 2-3 per cent.

“The OIE is still confident in the new targets as pressure from US firms to cease the trade war is expected to ease the US-China trade war and improve Thailand’s exports,” Nattapol said.

Industrial production is slowing down in most countries, particularly in consumer electronics, as a result of the trade war. This has forced plants in China to ease production volumes and has led to fast-paced technological changes in mobile phones.

In May, the production of chemical fertilisers, automobiles and engines, rubber products, accessories and hard disk drives dropped, due mainly to declines in domestic consumption and foreign orders.

Production of air conditioners and parts in May rose 13.77 per cent year on year, due mainly to the very hot weather, and orders from Vietnam, Indonesia, India and Japan. Palm oil production jumped 26.91 per cent year on year, boosted by biodiesel promotions and a contract with Electricity Generating Authority of Thailand for palm oil. Production of non-alcoholic beverages and drinking water climbed 16.48 per cent in light of the very warm weather in the country, new products, sales campaigns and expansion in China and Vietnam.

One among exporters’ major concerns is the baht’s appreciation following the US dollar’s depreciation, which could pressure the Bank of Thailand’s Monetary Policy Committee (MPC) at its meeting today, said Jitipol Puksamatanan, chief markets strategist at Krungthai Bank.

The baht opened at 30.65 to the US dollar yesterday morning, compared to the previous day’s close of 30.75 per US dollar.

Although the central bank signalled no support for currency speculation to pressure the baht to depreciate, the baht may appreciate further if the MPC views it should support a rise in the policy rate, Jitipol said.

 

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