2 key economic trends Thailand must watch out for

Manufacturing output is likely to edge up 3%.

According to DBS, domestic demand strength was clearly visible in 4Q and this momentum has spilled over into early 2013. Notably, the custom trade numbers (February numbers due this week) has also been reflecting a steady uptrend in imports.

Over the past 12 months, flood reconstruction efforts have already eased, but capital goods imports have stayed elevated indicated sustained investor confidence in the country as a manufacturing base.

This component of imports is likely to surge in 2H, assuming that the THB 2.2trn infrastructure plan kicks off on schedule. Even if delays take place, the capital imports surge should still be visible by early 2014.

Here's more from DBS:

Pro-growth policies such as sharply higher minimum wages, the rice pledging scheme and baht strength have also contributed to increasing purchasing power for consumers.

Unsurprisingly, this has also resulted in consumer goods imports rising by 33.6% YoY in January. With the export recovery still uneven, the custom trade balance lapsed into a record trade deficit of USD 5.5bn in January.

Going forward, two key trends are expected to be in place. Firstly, the export recovery story is likely to play out in the coming quarters and this should show up as better manufacturing and export numbers for electronics.

Manufacturing output has been held back by weak demand for office, accounting & computing machinery even as capacity gets stretched for motor vehicles.

Secondly, once the government’s infrastructure plans get going, another wave of capital goods imports would take place.

Overall, the custom trade balance is projected to stay in negative territory this year. For February, custom export and import growth is expected to reach -3.1% YoY and 10.4% YoY respectively.

Meanwhile, manufacturing output is expected to increase by 3% YoY.