Thai export sales plummet 17.6% in May

Export data for Thailand has softened on a sequential basis, though the y-o-y numbers were still a notch above market expectations. Such slowdown was well anticipated, given the supply chain wobbles from Japan. That said, these are still decent numbers- imports show that domestic demand is holding up well and exports bounce likely to be on the cards soon.

Facts
Thai exports grew 17.6% y-o-y in May, following the firm print of 24.6% y-o-y in April. This was a touch higher than expectations. We penciled in 13% y-o-y while the market consensus had 15.6%. However, in seasonally adjusted terms the decline continued amid Japan supply chain disruptions- from -1% m-o-m in April to -0.8% m-o-m in May.

Imports on the other hand continued to showcase the internal strength in domestic demand and went up by 33.3% y-o-y (vs. 26.6% y-o-y in April). In seasonally adjusted terms too the upsurge continued and m-o-m growth rate was recorded at 1.9% in May (vs. 2.1% in April).

The trade account entered back to a positive territory after registering a negative number last month, at a surplus of USD278mn (vs. deficit of USD797mn in April).

Implications
Today's sequential decline in export numbers is not a surprise to us. The latest data on vehicle sales, auto production and business sentiments already signaled a weaker data for the month of May.

While supply chain disruption has dealt its dent on the string of numbers for Thailand and others lately, we believe this effect to be short lived, with normalization of activities coming in the next few months. Interestingly, while the close economic ties with Japan result in Thailand possibly seeing a more pronounced impact than others, the very tight-knit nature of the relationship also means that Japanese firms place more importance on Thailand. From our recent meeting with the Bank of Thailand, for instance, Japanese automakers have prioritized shipment of whatever car parts they can spare to send over to Thailand, given the country's status as a regional auto production hub.

Moreover, it is worth noting that the order book numbers from the business sentiments survey also offer another reason to be optimistic on an exports rebound. While its level is still below where it was earlier in the year, the total order book for the next three months has increased again in April.

All in all, growth is not where the central bank is worried about. Inflation is. With the pass-through of price increments after the expiry of producer price agreements still rippling through, we are probably going to see a few more months of higher inflation readings. The release of MPC meeting minutes last week continues to confirm the BOT's hawkish bias. The central bank has every intention to normalize rates further, but the next meeting on July 13th - coming just ten days after the election - may be too inconveniently timed for it to pull the trigger for the 8th time in this cycle.

Bottom line: Exports appear to be poised for a rebound quite soon. Growth is not a concern here. Inflation is. BOT is still not done with normalization yet, but may not hike on Jul 13th just yet.