Thailand: export recovery finally coming through

Industrial production (IP) surprised on the upside in September with 4.21% YoY growth with the consensus being 3.55% and the previous figure 3.74%. Firmer exports supported the third consecutive month of acceleration in IP growth, even though export growth moderated in September (12.2% vs 13.2% in August). After de-coupling earlier in the year, both growth rates moved in the same direction in the third quarter, to acceleration. 3Q17 IP growth of 3.8% was up from -0.1% in the previous quarter, and it is the fastest rate in five quarters. USD-denominated export growth picked up to 12.0% and 10.9% over the same period.

This is a sign of export recovery finally coming through into manufacturing, validating the official tone of further acceleration of GDP growth in 3Q17 from 3.7% in 2Q. However, it needs to be seen how much of this really gets transmitted to GDP growth.

The manufacturing contribution to 3.5% GDP growth in 1H17 was insignificant at 0.3ppt, and oddly enough inventories were the biggest expenditure-side driver with 3.6ppt contribution. That said, we revise our GDP growth forecast to 3.9% from 3.5% for 3Q and to 3.7% from 3.5% for the full-year (cons: 3.7% and 3.5% respectively). The Bank of Thailand forecasts 3.8% GDP growth in 2017.

CPI data for October is due tomorrow. We are in line with consensus in forecasting steady CPI inflation in October at September’s rate of 0.86%. There is no inflation in Thailand, and all of the rise to 0.6% year-to-date from 0.2% in 2016 was from oil-related utilities and transport CPI components. Core inflation has eased to 0.5% from 0.7% over the same period. Inflation has been below the BoT’s 1-4% target, and absence of spending-driven price pressure makes it hard to get there.