Articles
28 August 2018

Thailand: A modest manufacturing slowdown in July

Slowing manufacturing signals a further GDP slowdown in the current quarter. Yet, the recent increase in hawkish rhetoric by the central bank threatens our call of unchanged monetary policy during the remainder of the year  

4.6%

July manufacturing growth

Better than expected

Above-expected July manufacturing growth

Thailand’s July manufacturing output surprised on the upside with growth of 4.6% year-on-year, beating the consensus expectation for only 4.3% growth. The July growth rate was a slowdown from 5.0% growth in June, which was revised up from 4.7%. We were at the low end of the consensus forecasts range (3.6% to 5.2% growth), expecting base-year effects and tapering export strength in recent months to depress manufacturing. The manufacturing capacity utilization dipped to the lowest in nine months to 67.2% in July from 69.1% in June.

Although our forecast was wide of the mark, the manufacturing slowdown does tally with our forecast for a further slowdown in GDP growth in the current quarter from 4.6% in the second quarter, which in itself was down from a five-year high of 4.9%. We will refine our 4.1% GDP growth forecast for 3Q in the light of more high-frequency data in the weeks ahead. But for now, a GDP slowdown seems inevitable against a more unfriendly base-year effect, while the global trade war risk to exports remains elevated.

Increased central bank policy risk

There has been a significant increase in hawkish policy rhetoric by Bank of Thailand officials recently, especially from Governor Veerathai about the need for monetary policy normalization. Today’s data may provide a further boost to such rhetoric.

Creating some policy space for the future is one thing. But, the economy isn’t screaming out for a policy tightening just yet, while higher rates could also threaten the fragile recovery reflected by still anaemic domestic demand. Apart from consumer spending, which contributed to half of the 4.6% GDP growth rate in 2Q18, there is little vigour in other domestic spending-side GDP components. Moreover, inflation continues to be low and, unlike some of its Asian counterparts, the BoT isn’t under any pressure to shield the currency from the emerging market rout (like the one earlier this month stemming from the Turkish financial crisis), thanks to a large current account surplus.

That said, our call for the BoT keeping policy unchanged this year remains at risk at the next policy meeting on 19 September.


Disclaimer

"THINK Outside" is a collection of specially commissioned content from third-party sources, such as economic think-tanks and academic institutions, that ING deems reliable and from non-research departments within ING. ING Bank N.V. ("ING") uses these sources to expand the range of opinions you can find on the THINK website. Some of these sources are not the property of or managed by ING, and therefore ING cannot always guarantee the correctness, completeness, actuality and quality of such sources, nor the availability at any given time of the data and information provided, and ING cannot accept any liability in this respect, insofar as this is permissible pursuant to the applicable laws and regulations.

This publication does not necessarily reflect the ING house view. This publication has been prepared solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.

The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.

Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved.

ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam).