Thai manufacturing industry suffering badly from rising costs, export slump: TTB Analytics

To improve conditions, the analysts have advised the government to promote investments in the EEC areas to boost employment and revenue in the sector.

The economic analytical centre under TMB Thanachart Bank said the manufacturing sector is responsible for about 27 per cent of Thailand’s gross domestic product (GDP) and employs about 9 million people.

The centre said since the emergence of Covid-19 in late 2019, the demand for Thai products has dropped drastically, affecting growth in the sector. The sale of the country’s manufactured products has dropped 16.2 per cent from 6 trillion baht in 2019 to 5 trillion baht in 2020.

TTB Analytics cited the data from the Office of Industrial Economics which said that from 2017 to 2021, the manufacturing sector’s revenue has expanded 1.3 per cent year on year on average. Domestic sales expanded 1.7 per cent, while exports expanded 0.6 per cent year on year on average.

The centre said in 2020, the sale of manufactured products had dropped in almost the entire industrial sector due to Covid-19 lockdowns. Food and consumer products only saw slightly increasing consumption in the domestic market, while only a handful of products enjoyed significantly increasing demands during the outbreak, such as medical gloves. The manufacturing output in the computer and electronics industry also saw steady growth during the pandemic as they were not affected by employees being forced to work from home.

TTB Analytics said the manufacturing sector bounced back in 2021 as more Covid-19 restrictions were eased, allowing people to resume economic activities. Sales of manufactured products in 2021 expanded 18.4 per cent year on year, though most industries have boosted their output, two have yet to fully recover from the impact of the pandemic, namely beverage and construction materials. The beverage industry relies on exports and has not recovered because many countries are keeping their borders closed, while the construction industry is losing out due to a drop in people’s purchasing power.

TTB Analytics said in 2022, the sales of manufactured products rose 22.6 per cent year on year, though this is mainly due to inflated prices as the sales volume is nearly at the same level as before Covid-19. The centre warned that though sales show an improving trend, manufacturers are suffering from rising costs and a significant drop in profits.

“Manufacturers have been raising their prices since the start of this year to cope with increasing costs. This strategy will stop working when the prices soar beyond people’s purchasing power and will send the economy into recession next year. This trend should be monitored closely,” it said.

TTB Analytics added that in the past five years, growth in the manufacturing sector has been limited to large industries such as automotive components, energy, chemicals, food and electronics, all of which had been severely affected by decreasing demand during the pandemic.

“To ensure continued growth and comprehensive revenue distribution across the entire manufacturing sector, the government must promote investment in new S-curve industries, especially in the Eastern Economic Corridor [EEC] areas, which will also boost employment in local communities,” said the centre.

TTB Analytics said industries that need immediate investment promotion include food processing, biotechnology, digital, automation system and robotics, aircraft, and national security technology.

“As the Covid-19 outbreak is nearly at an end, the government must focus on investment promotion aspects to ensure a steady growth of the country’s economy, including attracting foreign direct investment and building of infrastructure and ecosystem for target industries, which will surely help boost GDP expansion to 5 per cent annually in the near future,” said the centre.

TTB Analytics, however, forecast economic growth in 2022 at 3.2 per cent and 3.7 per cent in 2023, with a major contribution from the tourism industry.