The value of Thai exports dipped for an eighth consecutive month in May, falling by 4.6% to US$24.3 billion, contributing to an overall decline of 5.1% to $116 billion in the first five months of this year.
The tepid performance has prompted many manufacturers dependent on sales to the US, Europe and Asia, notably those making furniture, machinery, steel and iron, and construction materials, to adjust their production plans.
Some companies are beginning to reduce work shifts and overtime payments, limiting their production capacity in order to keep businesses running.
For the remainder of this year, Thai exports face several risk factors, including the slow economic recovery of important trading partners such as the US, Europe and China.
Persistently high global interest rates have led to an economic slowdown and increased borrowing costs for entrepreneurs, resulting in higher production costs for exporters.
High electricity bills and expensive raw materials have also adversely affected Thailand's global competitiveness, while the domestic agricultural sector faces increased risks from climate change, particularly the impact of El Niño, which could have negative consequences for food exports.
The dim prospects have led many private groups to trim their export forecasts for this year, including the Joint Standing Committee on Commerce, Industry and Banking (JSCCIB) and the Thai National Shippers' Council (TNSC).
JSCCIB cut its export growth forecast to -2% this year, down from -1% previously, while the TNSC snipped its shipment outlook to a range of -0.5% to 1% growth, compared with 0-1% growth previously.
The export sector, which accounts for nearly 70% of Thai GDP, will be hard-pressed to help boost Thai economic growth this year.
TOUGH TIME
Kriengkrai Thiennukul, chairman of the Federation of Thai Industries (FTI), said the group does not see any signs of significant improvement for exports in the second half of this year.
The FTI is looking for ways to help 25 industries that are affected by the prolonged export slowdown.
The main export markets in the US, Europe and Japan have stagnant economies and higher interest rates, while China is forecast to have lower economic growth than projected, he said.
Mr Kriengkrai said the US Federal Reserve may increase interest rates again in the second half of this year, which will affect Thai exports.
The World Bank warned last year of a global recession in 2023 after central banks decided to raise interest rates in response to high inflation.
He said the 25 Thai industries affected by the export slowdown include textiles, steel and iron, furniture, hard disk drives and construction materials.
Manufacturers decided to reduce production after goods purchase orders from both domestic and overseas markets decreased.
These industries had already reduced working time at their factories to one shift, down from 2-3 shifts, and lowered overtime payments in response to the sluggish trade.
"The manufacturers need to reduce production because they do not want to shut down factories, which will lead to layoffs," said Mr Kriengkrai.
"They are carrying on manufacturing only to maintain employment."
Other factories are continuing production only to maintain stock as goods must be available when customers place orders, he said.
Despite the dismal prospects for this year, the FTI expects more sales during the fourth quarter as demand increases for year-end festivals, including Christmas and New Year celebrations.
However, if sentiment remains downbeat at that time, layoffs may be a last resort, said Mr Kriengkrai.
"The business sector never wants to make this choice," he said.
China slowdown
Local research centres expect Thai exports in the second half of this year to be pressured by the global economic slowdown and China's disappointing economic recovery.
Thailand's shipments to China in May, particularly agricultural products, shrank by 24% year-on-year.
China, the world's second-largest economy, is mired in uncertainty amidst a historic downturn in the property market, local government debt and geopolitical conflicts.
Kasikorn Research Center (K-Research) projected in its latest report that Thai exports would contract by 1.2% in 2023.
SCB Economic Intelligence Center (EIC), the research arm of Siam Commercial Bank, downgraded its export forecast to a 0.5% contraction from a 1.2% growth rate. The figure was influenced by China's underwhelming economic growth, affecting the mainland's imports and exports, said SCB EIC.
"In May, China's imports unexpectedly dropped almost 8%, the biggest fall since January. This is the key risk factor dampening Thai exports to China for the remainder of the year," said SCB EIC.
Krungthai Compass, the research centre of Krungthai Bank, said Thai shipments for the remainder of the year would be greatly affected by China's weak economic recovery.
Thai shipments to other key economies, especially the US, the EU and Japan, are still fragile as these economies swoon, said Krungthai Compass.
Soaring costs
Aat Pisanwanich, director of the Center for International Trade Studies at the University of the Thai Chamber of Commerce, said Thai exports have bleak prospects and could contract by 2% this year as a result of a slowing global economy and higher production costs, particularly labour, resulting in a loss of competitiveness.
Thailand is trying to form a new government, which has hindered the momentum for export promotion, and there is uncertainty over whether the Chinese economy will grow by 5%.
"There is a slim chance Thai exports can record growth this year. The most optimistic outlook would put the expansion at 0.5%," said Mr Aat.
"Thailand needs to implement a reward system for foreign agencies that promote exports, such as monetary rewards deployed by the private sector to improve the motivation of officials, setting targets in key markets, and emphasising marketing activities in those markets to stimulate purchasing power."
Multiple challenges
Chaichan Chareonsuk, chairman of the TNSC, said Thailand's export sector is confronted with unpredictable elements that pose significant challenges. The economic outlook for the US and Europe is muddled, while there are concerns about the sluggishness of China's recovery.
Without proactive measures, Thailand's exports could experience a decline, potentially leading to a contraction of 0.5%, he said.
But if the private sector and the government work together to find suitable export products and explore new markets to replace the sluggish ones, Thailand's shipments may record growth this year, said Mr Chaichan.
The TNSC estimates exports may post growth this month. China's economy is still capable of growing and continues to support Thai exports, as Thailand is part of China's supply chain, while the Middle East and India are emerging export markets Thailand can rely on, he said.
Moreover, there is hope for economic recovery in Cambodia, Laos, Myanmar and Vietnam (CLMV).
Although hard disk drives, electronics, plastic pellets and chemicals bound for the main markets of the US and Europe, accounting for 20% of Thai export value, are slowing, other goods are still performing well.
During the second half of this year, the TNSC expects automobile shipments to have a positive performance, while exports to China of electronics, plastic pellets, chemicals and textiles are anticipated to recover.
Air conditioner shipments are posting good growth in the Middle East and India.
The exchange rate, with the baht at around 35 to the US dollar, is considered a supporting factor for Thai exports, benefiting agricultural and food products, said the TNSC.
"We must wait and hope for spending in the fourth quarter while actively seeking new markets, such as Latin America, the Commonwealth of Independent States [CIS], the Middle East and India, where freight rates remain low," said Mr Chaichan.
"If we focus on quick wins that can yield results, food and fruit exports to China can increase in the second half because the economy there is gradually recovering, similar to the EU, indicating there is still demand."
However, he said it is essential to monitor oil prices the last four months of the year to determine how much demand will increase during the winter.
"In the remaining months of the year, we need to monitor the severity of the economic slowdown in our main trading partners and the impact of the Russia-Ukraine war. In addition, there is a high chance of drought occurring, which requires the government sector to collaborate on water resource allocation," said Mr Chaichan.
"We still believe if the government and private sector work closely together and engage in intensive export promotion activities, Thai shipments could grow by 1%."
He said the obstacles for Thai exports will be even greater in 2024, with compromises on labour costs resulting in increased production expenses, requiring the private sector to speed up efforts to improve the skills and knowledge of the workforce.
Mr Chaichan said it is essential the new government ensures a stable economic environment and provides sufficient capital circulating through the economy, especially for small and medium-sized enterprises to access credit sources and supply chain financing.
Free trade agreements
Somjai Phagaphasvivat, an independent political and economic analyst, said the new government must have the political will to engage in various free trade agreements (FTAs) to create competitive advantages for Thai products in the international market.
He said apart from a slowing global economy, geopolitical conflicts and domestic political issues including higher labour costs, the reason Thai exports fell for an eighth consecutive month is a lack of FTAs, especially when compared with competitors such as Vietnam.
Mr Somjai attributed an FTA with the EU and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership for Vietnam having lower export costs than Thailand.
"Participation in any FTA has both positive and negative consequences, but if the positives outweigh the negatives, Thailand should join," he said.
Mr Somjai said remedies for the negative impacts of FTAs exist, such as setting up a fund to assist sectors that need help to be competitive via restructuring.
Opening up new export markets is necessary, especially in the Middle East, India, Africa and Latin America based on their high economic growth rates and purchasing power, he said.
Adding value to products that already sell well, such as food and fruit, is also recommended to increase Thai exports, said Mr Somjai.
Upbeat second half
Permanent commerce secretary Keerati Rushchano remains optimistic that Thai export prospects should improve in the third and fourth quarters of this year as the global economy recovers and economic conditions are enhanced among trading partners.
He said the baht exchange rate remains competitive, while the ministry has plans to ramp up market expansion into seven regions and specific clusters later this year, starting with food and fruit in the province of Yunnan and the city of Nanning in China.
The ministry also wants to explore new potential markets such as the CIS, Kazakhstan, countries in Latin America and neighbouring countries, said Mr Keerati.
He said the ministry intends to stimulate outbound shipments in the latter half of the year.
A recent joint meeting with overseas commercial counsellors and representatives from the private sector, such as the Thai Chamber of Commerce, the FTI and the TNSC, agreed upon contingency plans to stimulate shipments in the second half of the year.
The meeting also identified the Middle East, South Asia, CLMV and China as target markets that still have growth potential amidst the global economic slowdown.
To enhance exports to these markets, a task force was established to develop details for an export promotion plan.
The plan consists of 350 activities aimed at boosting exports in the second half of the year to achieve the 2023 target of 1-2% growth.
The 350 activities are expected to help generate income for the country of more than $550 million, or 19.4 billion baht, in the second half.
"The ministry is proceeding with plans to open new markets, maintain existing markets and revive old ones through strategies such as accelerating the formation of trade representative groups to expand market potential; promoting cross-border e-commerce; negotiating business partnerships both offline and online; boosting exports of bio-, circular and green products as well as new innovations; and promoting business matching for high-value services, especially digital content, hotels, restaurants and catering, and eateries with the Thai Select logo," Mr Keerati said.
"In addition, the ministry aims to tap more secondary city markets, especially in Asean, the US and Europe."
