Double blow for Thai exports: Strong baht then slump in foreign demand
By Jon Fernquest
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No more currency crisis and baht appreciation for a while, it looks like.
The liquidity crisis hit the US two weeks ago, then capital started flowing out of Thailand.
Portfolios shifted from emerging markets into safer assets pulling down the baht down from previous record highs.
Now suddenly, it's declining demand by Japan and the US that's hurting Thai exports.
Dependence on exports to fuel economic growth apparently has its ups and downs.
That's what today's article is about:
Exports, a pillar of strength in Thailand's wobbly economy, have suddenly slowed due to cooling foreign demand and a strong currency, raising fears the kingdom will miss modest growth targets.Thailand counts on exports for 60% of its economy. It is the world's biggest exporter of rice and also a major producer of cars, textiles, electrical appliances, fruit and shrimp.
But exports in July grew a modest 5.9% year-on-year to $11.8 billion, the lowest level in 29 months, amid a slump in demand in the US and Japan, the kingdom's top trading partners.
"Exports grew slower than our target of above 8% in July because of the strong baht and a decline in demand abroad," said Tanyalak Surapol, a senior economist at the private Kasikorn Research Centre.
US-bound shipments in July dropped by 13.6% from a year earlier, while exports to Japan edged up just 1.7% in the month, the Commerce Ministry said.
The weak July data came as a particular shock as exports had been rising over 18% each month since January.
a pillar - strong wide concrete pole holding a building up
wobbly - moving from side to side while walking (like a drunk person)
Kasikorn Research Centre - Thailand's top private economic research center
Reading questions:
1. When did Thai exports slow down?2. Why did Thai exports slow down?
3. How much does Thailand's economy rely on exports?
4. What are Thailand's main exports?
The article continues:
Exports have been among the few bright spots of the Thai economy, which has been hit by sagging business confidence and anaemic consumer spending due to prolonged turmoil over last year's coup ousting Thaksin Shinawatra.The government has expected the economy to grow just over 4% this year, among the lowest in Southeast Asia, while cutting the export growth forecast for the full year to 12.5% from 13%.
"Exports will be a far less potent engine of growth for the Thai economy during the second half," Phatra Securities said in a research paper following the release of the July export data.
"The government's 4-4.5% GDP growth target will be harder to achieve in light of the export slowdown," it said.
sagging - dropping very low
anaemic - weak (lacking blood)
prolonged - longer than normal
turmoil - disorder, conflict, disagreement
Phatra Securities - major secturities firm in Thailand
x in light of y - x because of y
Reading questions:
5. What domestic factors are having a negative effect on the Thai economy?6. How does Thailand's economic growth this year compare to other Southeast Asian countries?
7. Does Thailand usually have higher or lower growth rates than other Southeast Asian countries? (Outside research required)
8. How much will exports contribute to growth in the second half of the year?
The article continues:
Apart from weak foreign demand, exports were under pressure due to the strong Thai baht, which hit near 10-year highs against the dollar on massive capital inflows into the local stock market.A strong baht makes Thai goods less competitive abroad and cuts the value of repatriated profits. The government in late July launched a package of measures in a bid to weaken the baht.
Since then, the baht has fallen to more than 34 to the dollar, against a 10-year-high of 33.2 in early July, but economists warn of sluggish growth if exports continued to stall. AFP [From: Export trouble raises fears for economy, Nareerat Wiriyapong, Bangkok Post, page B9, 28-08-2007]
repatriated - brought back to your country
sluggish - moving slowly
stall - not move forward
Reading questions:
9. How long ago was the baht as strong as it is now?10. What two effects does a stronger baht have on export earnings?
