InfoQuest (December 3, 2019) -- Thai National Shippers Council (TNSC) has lowered its 2019 export growth forecast, which is a drop of between 2.5 percent to 3 percent, following export decline of 4.5 percent in October and 2.5 percent in the first 10 months, according to TNSC Chairperson Kananyaphak Tantiphipattanaphong. Earlier, it predicted that the exports would drop by 1.5 percent assuming the exchange rate of the Thai baht against the U.S. dollar was 33 baht/U.S. dollar (± 0.5).
Assuming an exchange rate of 30.5 baht against the U.S. dollar, the shipping association expects Thailand's exports to grow by 0-1 percent in 2020.
The council saw no positive factors for exports at present, but risks. Specifically, China and the U.S. had yet to agree on many trade issues, causing a concern that whether the two sides can reach a trade deal in the first phase, and the U.S. had intervened in China's internal affairs by announcing its support for the protesters in Hong Kong. If the two sides failed to make a deal, the U.S. was set to impose 15 percent additional tariffs on 156 billion U.S. dollars of Chinese products on December 15 as scheduled. China had already demanded the U.S. to roll back the tariffs earlier.
In the meantime, the IMO 2020 low-sulfur mandate will come into effect on January 1, 2020. International freight forwarders have announced that they will charge bunker surcharge or low sulphur surcharge (LSS), which will lead to an increase in international transportation charges and affect the overall cost of import and export business.
Another reason is that the Thai baht keeps surging, mainly because it is seen as a safe haven asset along with the Japanese yen, which will have an impact on all categories of exports that continue to slow.
Moreover, the growth of domestic economy is sluggish. It grew by only 2.4 percent in the third quarter of 2019 compared with the same period last year, below market expectations of 2.6 percent growth. It needs to grow by 2.8 percent in the fourth quarter of this year to achieve a full-year growth of 2.6 percent. The appreciation will affect export production costs.
Taxes included in the cost of enterprises are on the rise as the government hopes to increase revenue to stimulate the domestic economy. Foreign tourists can claim value-added tax (VAT) refund by using money in their pocket, which prompts government agencies to add more tax collection channels.
And a series of laws and measures introduced by the government during the economic slowdown have led to a deterioration in the competitiveness of the export sector, such as the proposed increase in the minimum wage, the ban on pesticides, and the imposition of sweet and salt taxes.
Therefore, the council proposed several important suggestions. The central bank should adopt stricter measures to manage the currency to prevent it from surging. Relevant agencies such as the Revenue Department should support the use of U.S. dollars instead of the baht, such as paying international freight in foreign currencies, etc., to reduce losses caused by fluctuations in exchange.
The government departments should pay more attention to the recovery of exports and take urgent measures to bring down the production and logistics costs related to international trade, such as adopting local charge related to international transportation, postponing raising the minimum wage, and facilitating tax refund subsidies for home-made products used for export.
The government should support enterprises to switch to clean energy or alternative energy and automation investment. And information technology should be employed to improve government operations to build e-Government, thus reducing enterprise costs and facilitate services, such as License Digitization & Analytic, and Digital Authentication, including Digital ID, Trade Digitization, etc. In addition, the government should provide training for farmers to help them acquire the skills and knowledge to use technology to replace manual labor, offer modern agricultural machinery, develop crop varieties to improve productivity per unit, and enhance Thailand's ability to compete with neighboring countries in agriculture and animal husbandry.
Source: InfoQuest, by Tanawat Suayaem/ Sasithorn, translated by Xinhua Silk Road
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