Thailand’s export growth plunges 16% in October

Exports growth figures released yesterday by the Commerce Ministry came in at 0.3% YoY and -16% MoM, nowhere near the 20% YoY growth in Sep and 25% average in Jan-Sep.

Taking into account the soft patch in North Asian data in Aug-Oct, however, an 8% MoM drop in exports was warranted merely to bring exports in line with the region. Thai exports track North Asian exports well and had outperformed in recent months. Assuming another 8% MoM drop in shipments to account for the damage from floods would imply a total drop of 16% MoM, exactly what transpired in the month.

Indeed, it may be inferred from the export data that manufacturing production probably fell by about 8% MoM in October (due to the floods). As it happens, this is not inconsistent with expectations for 2.5% GDP growth in 2011. Many factories are in the process of assessing damage from the floods and expected date of resumption of production or return to pre-flood productive capacity is still unclear (initial estimates such as 1Q12 are vague and probably conservative).

If production resumes in full swing in late-Nov or December, GDP growth in 2011 may not be worse than 2.5%, contrary to fears of a deeper slowdown reinforced by the weak 3Q GDP and now October trade data. Further, ironically, if 2011 growth is lower, such would mean upside risks to 2012 growth forecasts (other things remaining equal). In fact, a full normalization in output to pre- flood levels would point to 7% GDP growth in 2012 — thus our 5% forecast is conservative (and reflects risks from the Eurozone).

That exports did not fare as bad as the headline rate suggests or that much of the slowdown in 3Q (and 4Q) GDP are temporary would not mean much for the Bank of Thailand policy meeting next Wednesday. The swing in the headline export growth from September to October is outsized at 20%-point YoY and all said and done, the headline rate is 10%-YoY point below market expectations.

These are good enough reasons for the BoT to deliver a 50bps rate cut to bolster sentiment since it has revealed it is open to such temporary measures. And with the risk of the European debt crisis morphing into a financial / banking crisis increasing by the day, rate cuts would hardly be ill-timed from a fundamental growth or risks view point either.