Rising capital goods imports signal strengthening economy

A surge in imports of capital goods during the second quarter of this year is a signal that private investment is on the upswing and will help accelerate the already strengthening economic recovery, the Ministry of Finance said last week, as policymakers assured that the rising baht, the Thai currency, would not negatively affect exports in a significant way.

“Most of imported capital good items in the second quarter were machinery and wares to produce for export,” said Krisada Chinavicharana, director-general of the Fiscal Policy Office (FPO) at the Ministry of Finance.

Imported capital goods rose by 11.6 percent year-on-year during April through June, a strong increase compared to the rate recorded in the first quarter of 3.4 percent. Although imports have been rising, exports have also recorded impressive gains during the past four months, giving Thailand a trade surplus.

Exports are the engine that drives the Thai economy, with private investment and consumption also playing important roles. Imports of goods and raw materials used for manufacturing are a sign of a healthy economy, as opposed to imports that mainly feed consumption. Rising imports of capital goods for manufacturing is a clear signal that Thailand-based businesses are more confident in the country’s economic prospects in the near to medium future.

Sorapol Tulayasatien, director of the FPO’s Bureau of Macroeconomic Policy, said a double-digit percentage growth in imported capital goods is an important and welcome indicator for Thailand’s economy. It is a positive statistic that the ministry has been waiting to see for a while, as imports of capital goods serve as an indicator of private investment. Imports of capital goods fell in 2014 and 2015.

The government has been trying to stimulate and rebalance the economy through measures designed to jump-start private investment. Among them are its massive infrastructure upgrade and the development of the Eastern Economic Corridor advanced development zone.

According to the FPO, most of the imported capital goods in the second quarter were machinery and equipment to produce goods for export. May registered the largest increase in imported capital goods with a 15.8 percent rise. June saw an 8.8 percent increase, April 8.5 percent and March 9.7 percent.

Meanwhile, the secretary general of the National Economic and Social Development Board (NESDB), the country’s planning agency, said the rising value of the baht compared to other currencies would have a minimal impact on export growth. Economies that are Thailand’s major markets have been performing well and so their demand for Thai goods will remain relatively steady.

Businesses and exporters have been voicing concerns about the strengthening baht and the Bank of Thailand said it is monitoring the situation.

Since the beginning of this year, almost all Asian currencies have gained 5 to 6 percent following the weakening of the United States dollar, The Nation newspaper reported. The baht has been among the strongest gainers, however, prompting concerns about competitiveness.