Thailand - Global woes, higher wages may hold back Thai exports this year

The euro-zone financial crisis and the impact of the higher minimum wage as well as continuation of farm-subsidy schemes could be a drag on Thailand's exports this year, despite the emerging era of Asian economic growth.

The Commerce Ministry has set the growth target for export value at 8-9 per cent to US$250.41 billion this year, up from the projection of 4.5-5 per cent to $231.86 billion (7 trillion baht) in 2012.

Hit by many negative factors, the ministry likely missed its ambitious 15-per-cent export-growth target by a wide margin in 2012. In the first 11 months, shipments were valued at 211.41 billion baht, up by just 2.32 per cent year on year. This has prompted enterprises in various sectors to have gloomy prospects for export in 2013 amid high concerns over rising costs of production and labour.

Exporters gloomy

Paiboon Ponsuwanna, chairman of the Thai National Shippers' Council, said export this year was expected to expand at a slow 5-7 per cent because of higher costs of production, particularly the increase of the daily minimum wage to 300 baht nationwide.

"Global demand will face moderate growth. Thai shipments to many markets will not expand significantly, while higher costs of raw materials and the results of climate change will have big impacts on food production." He added that export by the agricultural-industrial sector was forecast to grow by only 1-2 per cent this year.

In a joint meeting of the Commerce Ministry, enterprises and Thai trade representatives, it was noted that industries that would show strong export expansion this year were automobiles by 15 per cent, electrical appliances by 5 per cent, rubber products by 5 per cent, construction materials by 10 per cent, canned seafood and processed foods, frozen and processed chicken at 12 per cent, and footwear at 5 per cent.

No growth

Shipments of electronics, jewellery and ornaments, garments, plastic and plastic products, furniture and parts will face flat growth.

Frozen and processed shrimp shipment will drop by 10 per cent while export of canned fruits and vegetables is expected to decline by 5 per cent.

Vallop Vitanakorn, secretary-general of the Thai Garment Manufacturers Association, said the garment industry would face many challenges from the government's policy to improve wages, impacts from the euro-zone crisis, and relocation of garment manufacturers to less developed Asean countries where they can exploit weaker labour protection and low wages.

"Profit margins in the garment industry will be narrowed from 5-6 per cent in previous years to only 1-2 per cent because wages are increasing, but retail prices remain unchanged. Rising wages will also force enterprises to expand into neighbouring countries," Vallop said. Thailand's garment-export value will not enjoy growth in the future as a result, he predicted.

The association forecast that apparel export would face flat growth to only $3 billion this year. Under the worst-case scenario of a severe impact from the euro-zone crunch, apparel shipments could drop by 5 per cent.

To lessen the impacts of the crisis in Europe and higher wages at home, producers have diversified to other markets, mainly poorer nations in Asia, as well as shifting factories to countries that enjoy export privileges.

In 2012, Thai garments' share of the US import market slightly increased from 33 to 35 per cent, Asean rose from 7-8 per cent to 9 per cent, while the EU accounted for 25 per cent and Japan for 12 per cent of the industry's total export value.

Charoen Laothamatas, vice president of the Thai Rice Exporters Association, expects that rice exports will not increase next year because of the government's pledging policy resulting in higher export prices than rivals'. The association predicts that export volume will be between 6.5 million and 7 million tonnes, unchanged from last year.

There have been no positive signs for the rice-export market. India will continue exports as usual to release its huge stockpile, and also forecasts rich production. Vietnam is still Thailand's major export rival as it offers lower export prices.

Exporters share similar views that they will have to struggle this year. They said they had to continue promoting shipment to traditional markets such as the US, Japan and the EU. However, the euro crunch is expected to continue to create negative impacts on export to other markets.

Factors affecting exports

Thai exporters will face many negative factors this year from the economic slowdown in the EU, which is having both direct and indirect impacts on many markets. Also, analysts warn that the euro-zone financial crisis could make it difficult for banks to approve credit for traders, which would create problems for Thai exporters.

According to the International Monetary Fund, the global economy will grow by only 3.6 per cent this year, higher than the 3.3 per cent forecast for 2012. Among Thailand's major trading partners, the United States' GDP will grow by 2.1 per cent, Britain's by 1.15 per cent, and France by 0.36 per cent. Italy's GDP will shrink by 0.73 per cent, and Spain will decline by 1.31 per cent.

In the Asian region, China will grow by 8.23 per cent, India by 5.9 per cent, and Japan by 1.23 per cent. Among Asean states, Singapore's GDP will grow by 2.9 per cent, Malaysia by 4.7 per cent, Indonesia by 6.33 per cent, Vietnam by 5.8 per cent, Laos by 8.05 percent, and Myanmar by 6.3 per cent, the IMF predicts.

Conflicts in the Middle East could also have an impact on fuel prices, which would drive up production and transport costs. The Commerce Ministry projects that the Dubai oil price will be $100-$120 a barrel this year, while the National Economic and Social Development Board predicts $108-$113, close to last year's average of $109. The oil price could climb to $130 a barrel early in 2014 after economic stimulus packages in many countries. The exchange rate is projected at 28.5-32.5 baht against the US dollar. Still, the export sector has been warned to monitor closely the resolution of the US "fiscal cliff" and the impact of the euro zone's problems, which will affect global exchange rates, including the baht.

The pressure on China to allow the yuan to appreciate could also affect its export competency, which could affect Thai exports as well.

An unexpected natural disaster could also affect supply of farm production and agricultural-industrial business. Export of crops including rice, rubber, cassava, maize, wheat, shrimp, and cotton could depend on the climate-change factor.

Finally, one of the factors causing the most concern for Thai exports this year is the increase in the minimum daily wage to 300 baht nationwide. Some exporters have complained that this will have a big impact on their production costs. Food, fishery, electronics and garment firms will be the most heavily affected.

Projections

The International Trade Promotion Department projects that the country's export to many emerging countries will continue to expand this year, but shipments to the EU will face flat growth.

Exports to Latin America are expected to increase by 15 per cent, to Asean by 10 per cent, Australia and New Zealand by 10 per cent, to China by 8 per cent, and to North America, Japan, South Asia, the Middle East and Africa by 5 per cent each.

*US$1=30.5 baht

Petchanet Pratruangkrai 

The Nation

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