Bangkok Post – K-Research: Industrial sector restructuring required

MPI is likely to contract again this year

Kasikorn Research Center (K-Research) predicts Thailand’s industrial production index (MPI) will contract by 2% this year, marking the second consecutive year of decline.

The research body urged the government to accelerate a fundamental restructuring of the industrial sector.

Kevalin Wangpichayasuk, deputy managing director of K-Research, said Thailand’s future industrial production could see a slow recovery, possibly declining from last year’s 3.8% contraction.

“We expect the MPI to decline by 2% this year. The main reason is that key MPI items recorded significant negative performance in the first four months of this year, particularly in the categories of electronic equipment, cars and construction materials, Ms Kevalin said.

“While the food sector may continue to perform well, this may not be enough to offset pressure in shrinking categories, leading to a less favorable outlook for MPI. As a result, the manufacturing sector will contribute less to the economy this year.”

Last year, the role of the manufacturing sector in the Thai economy fell to around 25%, generating 4.5 trillion baht in revenue, compared with 27% in 2022 and 30% in 2021. This means it is time for a significant restructuring of the Thai sector industrial, she said.

According to Ms. Kevalin, in the short term, the government can take three steps to increase industrial production: speed up the disbursement of investment budgets; monitor the quality of imported goods, which should benefit consumers and could support an increase in local product content; and accelerating liquidity support for small and medium-sized enterprises (SMEs) as they are vulnerable to rising costs. She noted that this should go hand in hand with efforts in the area of ​​water management.

She said the government faces three main challenges in addressing Thailand’s industrial production challenges, including uncertainty in the spending of capital budgets.

It was already expected that the situation would improve after the budget came into force. However, according to data from the Budget Office, as of June 17, only 33% of the investment budget had been paid, compared to 50% in the same period of the previous financial year.

According to Ms Kevalin, imports are expected to increase due to trade wars. Retaliatory tariffs between Western countries and China may force China to look for alternative markets, one of which may be Thailand.

Currently, 24% of Thailand’s imports come from China, especially electronics, cars and construction materials. As the trade war intensifies, Thailand could become a key export destination for China, putting pressure on Thai companies and increasing competition in both domestic and international markets.

Ms Kevalin said the average cost structure of Thai industry, including energy, raw materials, labor and financial costs, was under upward pressure. Diesel prices are rising and the minimum daily wage, which could rise to 400 baht across the country, is a further burden, especially for labour-intensive SMEs.

Additionally, the transition from the El Niño to La Niña weather phenomenon in the second half of the year could improve agricultural and food production due to sufficient water, but erratic rainfall and potential flooding could also impact production, putting pressure on some businesses.

Burin Adulwattana, managing director at K-Research, said that if Donald Trump wins the US presidential election and imposes a 60% tariff on Chinese imports as promised, it will have global repercussions.

“The relocation of Chinese production bases to other countries, including Thailand, if the US increases tariffs on Chinese imports may not materialize. Moreover, if all countries implement tariff measures, it could ultimately lead to a Great Depression, more severe than the one that lasted 90 years ago,” he said.

Nattaporn Triratanasirikul, deputy managing director at K-Research, said the Thai economy grew 1.6% in the first half of this year, driven by domestic consumption and tourism. The economy is expected to grow by 3.6% in the second half, supported by investment expansion, export recovery and continued growth in the tourism sector.

The research house is maintaining its forecast for Thailand’s economic growth of 2.6% this year, published in May.