Tourists walk past market stalls outside the Siam Centre shopping mall in Bangkok. Thai factory output dropped more than expected in December, adding to worry about how hard the country’s political turmoil is hitting the economy and raising the chance of an interest rate cut this quarter.
Thai factory output dropped more than expected in December, adding to worry about how hard the country’s political turmoil is hitting the economy and raising the chance of an interest rate cut this quarter.
Industrial output fell 6.1% in December from a year earlier. The fall was bigger than the 5.4% drop forecast in a Reuters poll and compared with a 10.6% decline in November.
December was the ninth straight month output has fallen from a year earlier. For all of 2013, output declined 3.18%. The Industry Ministry sees a 1.5-2.5% rise this year.
Last month, factory capacity utilisation was 60.1%, compared with 63.1% in November, according to the industry ministry. Average utilisation for 2013 was 64.4%, down from the previous year’s 66%.
Kampon Adireksombat, economist at Tisco Securities, said yesterday’s number signals that the economy contracted in the fourth quarter and is a “very clear indicator” Thailand is suffering because of declining domestic demand.
Thailand is scheduled to release the economic growth rate for the fourth quarter on February 17. In Thailand, production generally tracks exports, which account for more than 60% of the country’s gross domestic product.
Although the unrest has not disrupted factories or ports, it has hurt confidence, consumption and tourism as well as delayed some business expansion plans.
“The unrest impact should be limited in the short term but it will have a bigger impact if it causes investment delays in the longer term,” Somchai Harnhirun, head of the ministry’s Office of Industrial Economics, told a briefing.
As about 60-70% of industrial production relies on exports, the impact from the unrest is likely to be more on firms producing goods for the domestic market.
With the political turmoil, weak sentiment plus the fresh output data, Kampon and many other economists think there will be cut in the benchmark rate at the next Monetary Policy Committee (MPC) meeting on March 12.
“As the political unrest is likely to drag on, we expect the MPC to cut the policy rate in March and the rate may even fall further this year,” said Pragrom Pathomboorn, an economist with KGI Securities in Bangkok.
After a surprise cut in November, the MPC last week unexpectedly kept its policy rate unchanged at 2.25%, a three-year low. It said economic fundamentals remained strong and the unrest should be a short-term risk. But the vote was a close 4-3 vote, with three members supporting a cut.
Prime Minister Yingluck Shinawatra, whom protesters are trying to dislodge, has called an election for Feb. 2. Opponents are trying to disrupt it. They swarmed polling stations in Bangkok on Sunday, halting advance voting in nearly all centres.
Thailand, Southeast Asia’s second-biggest economy after Indonesia, is a regional hub and export base for top global carmakers and a major producers of hard disk drives.
While industry operations haven’t been disrupted, there is concern the political situation could cut investment.
Toyota Motor said this month it might reconsider investing up to 20bn baht ($608mn) in Thailand, and could cut production, if the unrest continued.
Pimonwan Mahujchariyawong, economist of Kasikorn Research Center, said the turmoil would inevitably affect Thailand’s short-term investment prospect. “However, if the tension eases within the second half of the year, we expect investors to resume their investment plans,” she added.
Panja Senadisai, director at export-oriented KCE Electronics, which makes printed circuit boards for the auto sector, told Reuters his company has not been affected by the political unrest.
“We have already received buying orders for February and we are running at about 90% and we do not cut production.”
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