Thailand: Manufacturing production contracts in the wake of recent floods
October 31, 2011
In September, manufacturing output dropped 0.5% over the same month last year, which contrasted the revised 6.8% expansion recorded in August (initially reported: +7.0% year-on-year). The monthly drop surprised market analysts on the downside, as they had expected that manufacturing production would rise 3.2%. The monthly drop reflected the impact of the floods that swamped about 10,000 factories and halted production in the automobile and electronics sectors. Thailand produces about a quarter of the world's hard-disk drivers and serves as a production hub for Japanese car makers and electronics firms. A month-on-month comparison corroborates the contraction suggested by the annual figures, as manufacturing output fell a seasonally adjusted 3.07% over the previous month, virtually reversing the gain observed in August (+3.66 mom). Owing to the monthly fall, the trend points to sluggish performance in the manufacturing sector, with annual average variation in manufacturing output falling from plus 0.6% in August to minus 0.1% in September, which represents the first month in the red since manufacturing production started to show positive growth rates in February 2010. That said, output is set to nosedive in the fourth quarter, as several firms were forced to suspend operations after the floods. On the back of the recent floods and due to the impasse over the Eurozone's sovereign debt concern, the Bank of Thailand significantly cut its growth forecast for this year and now expects the economy to expand 2.6%, down from its previous 4.1% estimate. For 2012, the Bank expects the economy to expand 4.1% (previous estimate +4.2%) based on solid fundamentals and on the back of reconstruction efforts.
Author: Ricardo Aceves, Senior Economist