Manufacturing sector continues to weigh on Thai economy

Thailand, in the first quarter of 2016, recorded a real GDP growth of 3.2% y/y, the most rapid rate in three years. However, there is not much space for positive outlook for the economy, said DBS Bank in a research report. The economy would have expanded just 1.5% without the contribution from public sector. Meanwhile, private sector demand is expanding at an annual rate of 2.5% at present. Therefore the overall GDP is expected to be lower than 3.5%, added DBS Bank.

The economy’s biggest sector, manufacturing, is a major worry. The sector accounts for almost 30% of the overall GDP. About 16% of the labor force is employed with the manufacturing sector, and yet it is the least performing non-agriculture sector in Thai economy. The manufacturing sector contracted 0.33% y/y in the first quarter.

For over three years, manufacturing has weighed on the Thai economy. It has contributed just 6.5% to the overall GDP since 2013, which is quite lower than its 28.5% weight. On the contrary, smaller sectors, hotels and financial intermediate have contributed a combined 50% of the GDP growth in the past three years.

Latest data does not give much comfort for the outlook. Even if the manufacturing production seemed to have bottomed in 2014, it has not rebounded. Capacity utilization rate has remained stagnant at around 64%, lower than its historical norm of around 68%.

Subdued growth in exports was partially responsible for weak manufacturing sector. Manufactured goods’ exports recorded nearly zero growth in the past three years. The downward trend was seen throughout all subsectors. Also, the government has been talking about dealing with rising competition from nations such as the Philippines, Vietnam and Myanmar. These nations are coming up as alternate destinations for low-cost manufacturing.