Thai trade sinks as flood recovery hits a snag

April exports and imports performed contracted 15% and 19%, respectively, from month-ago levels.

This abrupt trade drop took Thai trade a step back from its recovery path from the flood disaster that hit the country last year, said RBS in an emerging markets alert, and can be attributed to puzzlingly weak rehabilitation follow-through rather than to the increasingly risky global factors.

Here's more from RBS:

Exports dropped close to 15% month-on-months in April, reversing much of the rebound from the floods that occurred in February and March. Imports performed even worse, recording a contraction of 19% month-on-month. This resulted in a trade deficit of USD 2.9 billion—large by Thai standards, but an improvement over the USD 4.6 billion recorded in March.

There are strong indications that the trade contraction is attributable to Thailand-specific factors, rather than a weak global environment. In particular, the recovery from the floods seems to be more uneven that anticipated.

Exports contracted across major destinations in a synchronized fashion. This pattern is more easily reconcilable with Thailand-specific factors than global factors. If the weak global economy were to blame we would have probably still seen some regional differentiation, with the EU doing particularly badly and the Us holding up reasonably well.

The same conclusions emerge, when we compare Thai exports with those of its peers. All three Asian countries that reported April data show an export contraction over the previous month. But, at 1-3% these contractions are of an altogether different magnitude than the 15% observed for Thailand. Indications of Thailand-specific problems.

The most likely explanation for the trade contraction are set-backs in flood rehabilitation measures, although the abruptness of the fall is puzzling. This is born out buy a closer look at the product composition of trade flows. Among exports, it is manufactured goods which posted the steepest decline—exactly the goods that were most affected by the floods. Among imports, it was intermediate goods (including fuel) that feed into the manufacturing process that recorded the sharpest drop.

The immediate take-away of the trade numbers is that the recovery from the floods could be rockier than anticipated (although look out for reports from the ground that confirm the macro story told here over coming days). With a slower recovery coming on top of significant global headwinds, inflation may be less of a threat than made out so far. This lends credence to our view that interest rate hikes are unlikely before 2013.