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Thailand records first trade deficit in two years as exports grow at slower pace in July

Thailand’s external sector again failed to beat market expectations as the pace of export growth slowed in July, leading to the first monthly trade deficit in over two years. In July, the trade balance recorded a USD 190 million deficit, dipping from the previous month’s USD 1.9 billion surplus. July’s deficit was also below the USD 1.0 billion surplus recorded in the same month last year. The 12-month sum of the trade balance came in at a USD 14.4 billion surplus in July, below June’s USD 15.5 billion surplus. Although the external sector continues to perform robustly, the 12-month sum of the trade balance has seen consecutive monthly decreases since the outset of the year.

Exports grew 10.5% on an annual basis in July, which is below the 11.6% figure expected by market analysts—who were upbeat because of recent trade data. The moderation was not broad-based, as all but two sub-components recorded higher export values than in the same month last year. Sizeable increases in exports of machinery and food did the heavy lifting in July. Import growth accelerated significantly on the back of gold, machinery and mineral fuel and lubricant imports (July: +18.5% year-on-year; June: +13.7% yoy).

An uptick in global demand has fueled the trade-dependent Thai economy in the first seven months of the year. The strength of the baht has not yet dragged on exports growth, but it remains a risk to the external sector. A buoyant economy and strong national current account surplus have helped the baht reach an over two-year high against the U.S. dollar in recent months. In an effort to lessen speculation on the currency, the Bank of Thailand is requesting information from banks if they witness unusual high volumes of transfers between non-resident baht accounts. At the same time, they see a possible persistent trade deficit going forward as an upside risk that could limit the baht’s strength in the future. Nonetheless, the government upgraded its full-year export growth target from 5% to 7% in late August.

In 2017, FocusEconomics Consensus Forecast panelists expect exports to increase 4.4% and they see the trade surplus reaching USD 28.2 billion. For 2018, panelists expect exports to expand 4.0% and the trade surplus to reach USD 24.6 billion.