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Thailand’s Exports Decline Amidst Global Economic Uncertainties

Thailand’s export sector has taken a hit as the global economy grapples with uncertainties. The latest data from the Thai Industries Sentiment Index (TISI) reveals a downward trend, with a consecutive drop for the second month in a row, reaching 92.5 in May. This decline can be attributed to several factors, including high production costs and increasing policy interest rates.

All components of the TISI, encompassing purchase orders, sales, and production volume, experienced a decline, painting a worrisome picture for the Thai economy. The index’s fall to 92.5 signifies the second consecutive month of contraction, indicating a challenging period for businesses.

Kriengkrai Thiennukul, the Chairman of the Federation of Thai Industries (FTI), identified multiple reasons for the decline. Global economic uncertainties, primarily driven by external factors, have played a significant role. Additionally, Thai manufacturers have been grappling with high production costs, particularly related to energy expenses. The burden imposed by rising policy interest rates has further exacerbated the challenges faced by businesses. Moreover, concerns surrounding the formation of the new government in Thailand have added to the uncertainty and dampened business sentiment.

Looking ahead, the forward sentiment index for the next three months stands at 104.3, showing a decline compared to the previous month. Kriengkrai explained that this decrease is a result of concerns among business operators regarding the incoming government’s policy on raising the minimum wage. The anticipated rise in labor costs, especially for small and medium enterprises (SMEs), has raised apprehensions among the private sector. Moreover, there are fears that the minimum wage policy may deter foreign investments, further impacting Thailand’s economic prospects.

To address the challenges faced by SMEs due to the increase in policy interest rates, Kriengkrai emphasized the need for supportive measures from the state sector. He suggested initiatives such as providing low-interest loans to enhance business liquidity, facilitating debt restructuring, adjusting loan guarantee conditions to promote greater lending flexibility, and encouraging businesses to leverage Thailand’s various Free Trade Agreements (FTAs) with trade partners to bolster export values.

Highlighting the political landscape, Kriengkrai stressed the urgency of swiftly establishing the new government to prevent a political vacuum and instill confidence among investors. Foreign investors are eagerly awaiting clarity on the government’s formation, and any delay could have adverse implications. In fact, Kriengkrai cautioned that if the new administration only takes office late in 2023, it could significantly hamper Thailand’s GDP growth, potentially dwindling to 2.5% instead of the previously predicted 3.5%.

The challenges faced by Thailand’s exports and the concerns raised by the FTI Chairman underscore the need for comprehensive measures to mitigate the impact of global uncertainties and alleviate the burden on businesses. A supportive policy environment, coupled with timely political developments, will be crucial in navigating these turbulent times and restoring confidence in Thailand’s economy.

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