The projected increase in 2020 is now 2.7 per cent, down from 3 per cent previously. The economists caution that downside risks remain high and that the 2020 projection depends on a return to more normal trade relations.

MAIN POINTS

• World merchandise trade volume is forecast to grow 1.2 per cnt in 2019. This is substantially below the 2.6 per cent trade growth projected in April.

• Trade volume growth should accelerate slightly to 2.7 per cent in 2020 while global GDP growth holds steady at 2.3 per cent (at market exchange rates), but this depends on an easing of trade tensions.

• Trade conflicts pose the biggest downside risk to the forecast but macroeconomic shocks and financial volatility are also potential triggers for a steeper downturn.

• Trade-related indicators signal a worrying trajectory for world trade based on global export orders and economic policy uncertainty.

• Export and import growth slowed across all regions and at all levels of development in the first half of 2019.

“The darkening outlook for trade is discouraging but not unexpected. Beyond their direct effects, trade conflicts heighten uncertainty and are leading some businesses to delay the productivity-enhancing investments that are essential to raising living standards,” said WTO Director-General Roberto Azevedo. “Job creation may also be hampered as firms employ fewer workers to produce goods and services for export.”

“Resolving trade disagreements would allow WTO members to avoid such costs,” the WTO Director-General added. “The multilateral trading system remains the most important global forum for settling differences and providing solutions for the challenges of the 21st century global economy. Members should work together in a spirit of cooperation to reform the WTO and make it even stronger and more effective.”

The updated trade forecast is based on consensus estimates of world GDP growth of 2.3 per cent at market exchange rates for both 2019 and 2020, down from 2.6 per cent previously. Slowing economic growth is partly due to rising trade tensions but also reflects country-specific cyclical and structural factors, including the shifting monetary policy stance in developed economies and Brexit-related uncertainty in the European Union. Macroeconomic risks are firmly tilted to the downside.

Due to the high degree of uncertainty associated with trade forecasts under current conditions, the estimated growth rate for world trade in 2019 is placed within a range of 0.5 per cent to 1.6 per cent. Trade growth could fall below this range if trade tensions continue to build, or outperform it if they start to recede. The range of likely values is wider for 2020, ranging from 1.7 per cent to 3.7 per cent, with better outcomes depending on an easing of trade tensions.

Risks to the forecast are heavily weighted to the downside and dominated by trade policy. Further rounds of tariffs and retaliation could produce a destructive cycle of recrimination. Shifting monetary and fiscal policies could destabilise volatile financial markets. A sharper slowing of the global economy could produce an even bigger downturn in trade. Finally, a disorderly Brexit could have a significant regional impact, mostly confined to Europe.

Chart 1: World merchandise exports and imports by level of development, 2012Q1-2019Q2

Volume index, 2012Q1=100

Charts 1 and 2 show quarterly merchandise export and import volumes on a seasonally-adjusted basis by level of development and geographic region. In the first half of 2019, world merchandise trade was up 0.6 per cent compared to the same period in the previous year. This marks a substantial slowdown compared to recent years. Exports of developed economies were up just 0.2 per cent for the year-to-date, while those of developing economies were up 1.3 per cent. On the import side, developed economies recorded year-on-year growth of 1.1 per cent while developing countries declined by 0.4 per cemt. Growth rates based on quarterly data may differ slightly from calculations based on annual statistics, but they should be of similar magnitude.

Chart 2: Merchandise exports and imports by region, 2012Q1-2019Q2

Volume index, 2012Q1=100

If the ministry does decide to launch Phase 2, details will be concluded within this month, he added.

As of October 1, 9 million people have signed up for the scheme since it was launched on September 23. Registration will close on November 15 or when the scheme hits the 10-million registrations target.

Thailand, Indonesia, and Vietnam featured in Standard Chartered’s new Trade20 Index, which identifies the 20 economies with the greatest potential for trade growth.

Thailand has been ranked eighth in the bank’s new Trade20 Index which identifies economies with strong trade growth potential, thanks to its improving trade readiness and substantial progress in e-commerce.

The Trade20 study by Standard Chartered examined 66 economies across the globe, determined each market’s potential for trade growth by analysing changes across 12 equally-weighted metrics under three pillars: economic dynamism, trade readiness and export diversity.

The Asean accelerators

Our index points to accelerated Asian trade growth potential, particularly in Thailand, Indonesia and Vietnam, which performed well in the trade readiness pillar – defined as a market’s foundation for future trade growth.

These three economies are being propelled forward by export-oriented manufacturing, growing intra-Asean trade, strong domestic demand, close trading ties with China and healthy job markets. While they all face challenges from heightened global uncertainty, they are well placed to benefit if multinationals consider moving their supply chains due to trade tensions elsewhere. Regional trade deals, infrastructure improvements, and legislative reforms are also promoting increased openness.

According to Thailand’s Board of Investment (BOI), the number of project applications for Foreign Direct Investment (FDI) increased by 7 per cent to 758 projects worth Bt232.61 billion during the first half of 2019. The FDI value in BOI’s five targeted industries, including the biotechnology industry and robotics and automation, jumped 58 per cent to Bt23.84 billion during the January-June period from a year earlier.

Thailand’s trade readiness

Thailand has also been focusing on digitising processes and increasing efficiency across industries and activities, particularly international trade and exports. Working together with its regional neighbours, Thailand should be able to adopt trade digitisation relatively quickly, helping to accelerate Asian trade growth.

Export diversity

Thailand is ranked outside of the top 20 for export diversity as the index weighs on a market’s progress in its breadth of exports. Export diversity is measured by the variety of products exported and how export revenue is spread across that product range. The markets that rank highly in this category have made the most progress in terms of diversifying their exports, which should open new prospects for trade growth and make them less vulnerable to market pressures.

Plakorn Wanglee, President & CEO of Standard Chartered Bank (Thai) said, “the Trade20 Index maps the rising stars of trade, identifying the markets where the trade environment – and trade growth potential – has been improving most rapidly over the past decade”.

“Thailand is not only a trade and investment destination for foreign countries, but also a growing number of Thai companies have strongly expanded overseas,” added Plakorn.

According to the Stock Exchange of Thailand, net outflow of foreign direct investment in 2018 by Thai firms listed on the Thai bourse hit an 8-year high at Bt199 billion. This excluded their domestic investment in 2018, which increased by 15 per cent to Bt818 billion from 2017.

“There is a huge opportunity in cross border trading. Standard Chartered Bank (Thai) has leveraged our global network and innovation and has been increasingly applying automation systems to better serve our clients,” said Plakorn. “Apart from joining the Bank of Thailand in its Project Inthanon and running the issuance of a bank guarantee on blockchain (eGuarantee), we recently succeeded in executing the first cross-border Letter of Credit issued over the Voltron blockchain platform in the oil industry.”

“In the face of rising protectionism and slow global growth, the markets that are demonstrating this impressive pace of progress may represent interesting opportunities for corporates seeking new investments, imports and supply chain partners”.

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According to international standards, Thailand has been found lacking on 17 issues in relation to preventing money laundering and the financing of terrorism.

Financial institutions and businesses that come under the Anti-Money Laundering Act’s Section 16, such as gem dealers, car dealers or real-estate brokers, must undergo assessment. All transactions will be stopped and reported to AMLO if any signs of risky behaviour are detected.

Individuals who send more than Bt50,000 overseas and the recipient will have to provide their identification and information to banks before the transfer is completed.

Assistant managing director Nattaporn Triratanasirikul said the downgrade in GDP growth was in line with the global economic slowdown, which caused the country’s exports during the first eight months of 2019 to see a worse-than-expected contraction, as witnessed in various product categories and in most major markets.

“KResearch has therefore cut our export projection to a range of -2.0 to zero per cent, from zero per cent previously,” Nattaporn added.

For the 2020 outlook, several global challenges will weigh on the kingdom’s exports, which will be a crucial factor in shrinking the growth of Thailand’s GDP to less than 3 per cent.

This projection is based on an estimate of present conditions, and excludes the government’s economic stimulus measures.

However, the government’s Bt1,000 “Eat, Shop, Spend” handout programme may lift the country’s GDP by 0.02 per cent this year. But it remains to be seen whether the government will launch additional fiscal measures to boost the economy next year.

Any such measures should focus on workers lacking a social safety net, such as freelancers or small and medium enterprise entrepreneurs, who may see a drop in sales after customers become more cautious in spending, Nattaporn said.

As for monetary policy, the Bank of Thailand’s Monetary Policy Committee may further cut the policy rate in the near future. Nonetheless, monetary measures would only gradually produce a positive effect on the economy, Nattaporn added.

KResearch assistant managing director Siwat Luangsomboon expressed the view that the protracted US-China trade dispute may trim Thai exports by an additional $1 billion-$2.5 billion (Bt76.3 billion) in 2020 after the US imposed tariffs on Chinese imports, compared to $2.1 billion-$3 billion projected for 2019.

Although Thailand would likely see some benefit from the relocation of production bases to this country, such relocation may primarily be seen in industries among which foreign companies already have production bases here in Thailand, Siwat said.

Regarding Brexit, it is highly likely that the UK will leave the European Union without a deal, he said.

The next step is the UK and the EU would have to negotiate on the format of any free trade agreement and the border issue with Northern Ireland. These developments may affect global financial markets, while the impact of Brexit on the Thai economy should be limited, Siwat added.