Thailand must position its export sector to deal with the structural changes in global consumption patterns, and not be content with just finding new markets, a CIMB Thai Bank seminar heard.
Veerathai Santiprabhob, adviser to the Thailand Development Research Institute, said the global changes in consumption patterns had an impact on trade. He noted that trade used to grow at double the rate of world gross domestic product but now does not keep pace with GDP.
A decline in trade growth has been seen in many countries, and not only Thailand, while global GDP growth now is driven by the service sector because of the changes in consumption structure.
Several countries are becoming ageing societies, which will increase their consumption of medical and other services. Meanwhile, middle-income people in emerging markets are also spending more on services in line with their lifestyles.
Veerathai said supply chains were longer than before because many countries now rely more on domestic raw materials instead of importing them. For example, China now imports only 30 per cent of its raw materials, down from 50 per cent before. This also changes consumption structures.
He said that even though auto sales worldwide had maintained steady growth, auto-parts exports had declined because producers were relying on local raw materials.
Because of these new realities, he said, Thailand should not depend on emerging markets to drive export growth because several countries were reforming their consumption structure. The Kingdom instead should focus on positioning itself as a production base if export is to remain one of the key drivers for economic growth.
Amonthep Chawla, executive vice president of CIMB Thai Bank and head of its research office, said Thai industries needed to think more about how to add value to their products.
CIMBT expects Thailand’s export value this year to grow by 1-2 per cent. Exporters should take advantage of the baht’s appreciation to import more mechanisation technologies to strengthen their production. He said the baht was not expected to remain strong much longer as the United States aims to increase its policy interest rate in the second half of this year.
Veerathai and Amonthep both agreed that inflation in the fourth quarter of 2014, which will be declared by the Commerce Ministry on March 2, will show a drop but Thailand will not face deflation because the decline was due to the plunge in fuel prices. Consumption and investment did not drop.
Headline inflation might drop but core inflation will remain around 1.6-1.7 per cent.
Veerathai believes the global economy is currently being driven by only one engine, monetary policy, and not by the real sector. The recovery will gradually pick up but having only one growth engine will lead to instability.
Meanwhile in Thailand, the economic drivers are also very limited, primarily industrial investment and tourism.
The investment will be seen mostly in Bangkok and provinces in the Eastern region, while tourism will rely heavily on Chinese visitors because Europeans and Russians are cutting back on travel because of their shaky economies.
Veerathai is not placing much hope in government spending as a major economic driver. While some mega-projects are in the pipeline, the current military regime is only an interim administration and it is not easy to inject huge amounts of money into the economy. Instead, the regime is concentrating on reforming state enterprises, which are limited in how much they can spend during the reform process.
Amonthep added that looking ahead, domestic consumption too would have a hard time driving the Thai economy because household debt is still high, even though it has been growing more slowly than in the past two years.
Banks are also more cautious on granting loans to households for the same reason, so lending growth will be seen in the commercial sector, driven by private investment.
Jessada Sookdhis, chief investment officer at CIMB Principal Asset Management, has suggested that investors balance their portfolios mid- to long-term. They should invest in Thailand, India, Indonesia and China as those countries are net oil importers that are benefiting from the current low crude-oil prices and reforming their energy structures.
Around 10-20 per cent of an investment portfolio should be allocated to Thailand’s infrastructure funds and real estate investment trusts ahead of the expected mega-projects.
First Published: The Nation, February 25, 2015