The year 2020 has been a turbulent year for the entire world and Thailand has not been spared the wrath of the economic malaise that the pandemic has brought.
Amid all the negative news there seems to be some bight spot at least on the export oriented side of the economy, and the outlook seems to be looking better with key markets such as China witnessing some revival in their economies.
China, which was among the first countries to enter the global economic crisis from the outbreak of the Covid-19 virus, is among the first countries in the world to start to see recovery as well.
The country has been witnessing a relatively optimistic outlook for 2021 and this was reinforced by the fact that the country’s gross domestic product (GDP) saw a sharp contraction in Q1 2020 but ended the year with a 2.3 per cent growth in its economy.
China’s GDP contracted by 6.8 per cent year-on-year (YoY) in Q1/2020, then bounced back to a growth rate of 3.2 per cent in Q2, 4.9 per cent in Q3 and 6.5 per cent in Q4, resulting in a 2.3 per cent growth rate for the whole year of 2020.
This was a sharp contrast to the other countries around the world including Thailand which yesterday announced its 2020 GDP figures that saw a contraction of 6.1 per cent for the year.
China’s fast and steady recovery was due to an effective pandemic control strategy, together with time-sensitive monetary and fiscal policy measures.
China’s central bank has actively injected liquidity into the market via both conventional (i.e. lowering the Reserve Requirement and the benchmark Loan Prime Rate) and non-conventional methods (i.e. targeted lending support to lift SME lending). Simultaneously, a proactive fiscal policy has been adopted by expanding the central government budget deficit and increasing funds transfers to local governments in order to spur investment and transfer benefits to those in need during the COVID-19 pandemic.
With effective stimulus packages, domestic consumption continuously improved, but remained relatively sluggish as the growth of total retail sales was still below an average level of growth in previous year. The production of goods in manufacturing sector showed improvement across many industries with industrial production growth rates ranging between 6.9-7.3 per cent YoY in Q4/2020. In addition, demand for medical supplies and electronics products for working from home drove Chinese exports to a record high, reaching 21.1 per cent in November and 18.1 per cent in December 2020.
KResearch anticipates that the Chinese economy in 2021 will grow in the range of 8.0-8.5 per cent YoY, supported by continuous improvement in domestic consumption, which will be an important engine of economic growth. This is thanksto a growing middle-income group of around 400 million people, and an increase in income per capita to USD 10,264 (December 2019). High-tech related private and government fixed asset investments will also fuel growth in 2021, with an emphasis on green investment, digital infrastructure, construction of smart cities, and the development of the Internet of Things. Aiming for long-term sustainable development, these strategies are consistent with the 14th Economic and Social Development Plan to be enforced in 2021-2025. In addition, China’s exports will remain resilient, driven by medical supplies for COVID-19 prevention and electronic devices for working from home.
Thailand to benefit from Exports to China
In this regard, Thailand’s exports to China in 2020, China remained the second-largest export destination for Thailand, after the United States.
Despite Thai exports’ overall contraction of 6 per cent, exports to China remained solid, posting growth of 2.0 per cent. Exports of intermediate goods used to manufacture medical protective products expanded favorably, including rubber products to be processed into rubber gloves. Similarly, exports of intermediate goods (i.e. electronic parts, semiconductor devices) used in electronic products for working from home expanded continuously. Exports of automobile parts expanded substantially, as China relied on auto subsidies to boost car sales and thus compensate for the weak vehicle market during the lockdown. On the other hand, decreases were seen in exports of precious stones and jewelry, polymers and chemical products.
Amid ongoing uncertainty in 2021 over the pandemic, KResearch holds the view that China will maintain its prudent monetary policy and proactive fiscal policy to stabilize markets until the economy is fully recovered. This could benefit demand for Thailand’s exports in many categories ranging from consumer goods to industrial intermediate goods, for at least the first half of 2021.
Firstly, exports of consumer goods to China – particularly fresh, frozen and dried fruits – are expected to surge thanks to the recovery of domestic demand together with the popularity and irreplaceable nature of Thai fruits and products amongst the Chinese.
Secondly, exports of technology-related supplies (i.e. computer parts) which are related to work-from-home devices and high-tech manufacturing will continue to expand.
Thirdly, exports of commodities (i.e. polymers, rubber, tapioca products) will continue to surge, supported by a sharp increase in Chinese production demand and a rise in crude oil prices. By contrast, Thailand’s exports of automobile parts are expected to gradually slow as the Chinese authority has started to cut vehicle subsidies.
KResearch projects that Thailand’s exports to China in 2021 will grow 3.9 per cent YoY (in the range of 2.9-5.4 per cent). However, there are risk factors to be considered, i.e., the strengthening of the Baht, rising freight costs and container shortages, and uncertainties from COVID-19 which could disrupt supply chains in the event of unexpected city lockdowns.
All in all, a potential resurgence of COVID-19 remains a substantial risk for all countries worldwide in 2021 as they work towards effective mass immunization. Despite promising growth for the Chinese economy and Thailand’s exports to China in 2021, uncertainty remains the biggest concern. For businesses, adapting to the ‘new normal’ by having sufficient cash on hand and efficient cost control management is the most important strategy for survival during and after the crisis.
Thailand’s Main Export Components to China
Source: Ministry of Commerce