Current Account Balance Turned Surplus on Weak Domestic Demand
Aug 01, 2006
Deyi Tan (Singapore)
June’s current account balance improved unexpectedly to a US$65 million surplus, following May’s deficit of US$936 million. This is on the back of a smaller-than-expected trade deficit (US$425 million versus US$760 million in May) and a larger-than-expected net income and services balance (US$489 million versus -US$176 million in May), which saw an unusual high despite the lull in travel and transport in 2Q. On a quarterly basis, exports rose 16.3% YoY in 2Q (versus +17.9% in 1Q), while imports slowed further to +3.2% YoY (versus +5.4% YoY in 1Q). Both are partially attributed to base effects.
Global demand sustained Thai exports. The export front continued to do well in June (+17.6% YoY on a BOP, US terms basis). Broken down (in Bht terms), mineral fuel and lubricants rose 105.6% YoY, contributing 2.3 percentage points to the headline number. Key export segments such as machinery and manufactured goods also expanded at a respectable pace (+12.9% YoY and +9.6% YoY, respectively), of which computers (+18.0% YoY), computer parts (+32.0% YoY) and passenger cars (+42.1% YoY) saw sustained strength. Meanwhile, in terms of export destinations, exports to China were strong in June (+26.8% YoY versus +19.4 in May). Exports to the EU15 weakened considerably (+4.7% YoY vs +13.5% YoY in May), while those to Japan and the US were sustained at 1.8% YoY and 16.2% YoY, respectively. Weak domestic demand results in slower import growth. On the other hand, imports rose only 2.5% YoY (BOP basis, US terms) (versus +9.0% YoY in May), suggesting that domestic conditions remain less than favourable. In particular, import momentum of raw materials and intermediate goods (+1.1% YoY versus -0.5% YoY in May) and capital goods (-0.1% YoY versus -3.1% YoY) remain lacklustre, affirming that investment plans are being postponed until political uncertainty clears up. Meanwhile, imports of consumption goods are holding up at +10.2% YoY.
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