Flash Notes

International trade continued to contract in Jan 2016. Merchandise exports fell by more than expected to 8.9% y/y similarto the 8.7% drop in Dec 2015, showing Thailand is still struggling in the face of sluggish external demand and China’s economicslowdown. Meanwhile, agriculture and manufactured goods exports remained negative, falling to -4.1% and -8.5% from -9.8% and-6.7% in the previous month, respectively. The decline was the thirteenth straight month and the biggest for any month since Nov2011, when severe flooding closed thousands of factories. In Jan 2016, exports to China, Thailand’s second largest market after theUnited States, dropped by 6.1% y/y, while those to Europe fell by 2.4% y/y. Shipments to the United States also contracted by 8.5%y/y last month and exports to Japan decreased by 10.1% y/y. Nonetheless, the Ministry of Commerce maintained its 2016 exportgrowth target of 5%.

    January import contracted by even more than exports to -12.4% y/y led by a 41% fall in fuel and a 15% drop in raw materials,after a 9.2% decrease in the previous month. Many imported items are parts to be assembled into finished goods and shipped out.Excluding oil, Thai import growth was at -7.2% from -5.9% in Dec 2015. Consistent with this, we expect Jan manufacturing productionto show a similar pace of contraction as in the previous month since there remained large excess capacity and weak external andinternal demand. As a consequence, the trade surplus narrowed notably to USD0.2bn from USD1.5bn in Dec 2015.

    Although Jan merchandise exports growth remained negative more than expected, we expect the Bank of Thailand (BoT)will likely keep the policy rate unchanged at 1.50% in the March MPC meeting as Thailand’s economy has continued torecover gradually. Looking ahead, the economy could gain economic momentum thanks to continued improvement in tourism sector,accelerated disbursement of public spending and recent fiscal stimulus measures though this is likely to be offset by the persistentlyweak performance of merchandise exports. Current monetary policy stance should continue to be sufficiently accommodative in orderto support the economic recovery, while maintaining long-term economic and financial stability. Further reduction in the policy rate islikely to have a marginal effect on the economic recovery. Consequently, the policy space should be preserved for future utilisation tocope with significant risks, especially from the external front, negatively affect Thailand’s economic recovery going forward. For now,we maintain our end-1Q16 USD/THB forecast of 36.20.