FRIDAY, March 29, 2024
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A few positive signs for Thai industry

A few positive signs for Thai industry

Thai industrial production has been on a roller-coaster recently.

 

The floods late last year led production to drop an astonishing 47-per-cent in November 2011, compared to the same period the prior year. The floods directly hit many major industrial estates in central Thailand and also disrupted supply chains – meaning that even many factories that were not directly impacted were not able to operate as normal. 
The post-flood recovery was better than anticipated. By April and May this year, production was back up to above the levels of the previous year. But that recovery has since been derailed. 
While Thailand’s floods obviously had a huge impact on production, the biggest influencing factor on the Thai manufacturing sector is usually the regional and global situation. 
Over the past 10 years, Thailand has increasingly become part of the regional supply chain. The production process of many industrial items involves semi-finished goods or raw materials flowing between different Asian countries. 
These flows have been the main reason why more Thai exports are going to this region. Asean took in 24 per cent of total Thai exports in 2011 compared to 19 per cent in 2001, while exports to China are up to 12 per cent from 4 per cent. Meanwhile, Thai shipments to the US are down to 10 per cent from 21 per cent, and exports to the European Union are down to 11 per cent from 17 per cent. 
The fact that Thailand’s domestic market for manufactured goods is relatively small is another variable that makes local industries dependent on other countries. Thailand’s automotive industry cannot develop into a world-class sector by depending just on local sales, and the same is true of many other industries as well. 
All this is relevant because Asia’s manufacturing cycle has been weak over the past several months. The recession in the euro zone, China’s growth slowdown, and continued weakness in the United States have combined to dampen regional production. 
This has hurt Thai manufacturing as well. Local manufacturing production experienced double-digit year-on-year declines in August and September. 
The recent decline in Thai manufacturing and exports, and the potential hit on investment going forward, is the main reason why the central bank cut its policy interest rate by 0.25 –per cent in mid-October. 
When will the regional manufacturing cycle recover? Actually there are a few positive signs. 
The very latest manufacturing indicators for October show some stabilisation in the major manufacturing hubs. These indicators are PMI (purchasing managers index ) surveys, which are well-regarded measures of activity. 
China’s HSBC manufacturing PMI has climbed to an eight-month high. A similar measure in Taiwan is at a four-month high, while South Korea’s indicator also rose significantly from the prior month. The measurements are still showing contraction, but also show rising new orders and improving momentum. 
It is still too early to say that happy days are here again. However, it appears that the downturn in regional manufacturing is stabilising and bottoming out, and there are prospects for improvement towards the end of the year. 
 
Parson Singha is chief markets strategist in the Global Markets Department of HSBC Thailand.
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