Total Thai factory closings increase – bad debt accelerates

Bangkok, KKP Research points out that Thai industry is in a weak state. This is reflected in both the production index that has contracted for more than 1 year in a row, and the number of factory closures that have increased. and bad debt in the manufacturing sector is accelerating KKP Research by Kiatnakin Phatra Financial Business Group KKP Research indicates that the impact on the Thai industrial sector is becoming more severe and beginning to spread to industries that were once the main drivers of the Thai economy. What is evident is the automotive industry, with car manufacturers like Suzuki ceasing production in Thailand following declining sales. From this, it is estimated that accelerating the implementation of policies to help the industrial sector and adjust the industrial structure is something that still needs to be done. Along with finding a new engine to replace the old engine of the economy that has disappeared. Otherwise, it is inevitable that the Thai economy's growth potential will continu e to decline. Even though the number of factories opening is still higher than the number of closing factories. But the situation is different in each production sector, including leather production, rubber production, and agricultural industries. wood industry and machinery manufacturing It is the group that has experienced the greatest increase in factory shutdowns. The future situation is likely to become more severe, with the industrial sector still having to face important structural changes, namely (1) changes in the technology of some products (2) increased competition from Chinese products (3) official protectionist measures. International trade is likely to intensify. Over the past several months, the changes have been a sign of poor health for the Thai economy. Is industrial production measured by the Industrial Production Index obtained from a survey of manufacturers in various industries in Thailand published by the Office of Industrial Economics, has continued to contract since December 2022 un til March 2024 or continuously. for more than 1 year and 3 months, which is considered one of the longest consecutive periods of negative growth. This is despite the global trade cycle starting to recover from the end of 2023. The next, more worrying signal is data on factory closings in the industrial sector that have clearly accelerated since the second half of 2023, with average factory closures in Thailand at 57 factories per month in 2021 and 83 factories per month in 2021. 2022, while it will surge to 159 factories per month in the second half of 2023. As a result, if counted from the beginning of 2023 until the first quarter of 2024, more than 1,700 factories have closed, affecting employment. Over 42,000 jobs Plant closures alone may not reflect the full picture. But the number of new factory openings is lower than in the past, which also highlights the poor situation in the Thai industrial sector because the opening of new factories is also slowing down. Therefore, the net number of factory opening s (Number of open factories minus closed factories) overall has slowed down significantly. From a net positive average of approximately 150 factories per month. Reduced to only 50 factories per month Industries that have a worrying trend due to production shrinkage and increased factory closures include leather production, rubber production, and the agricultural industry. wood industry and machinery manufacturing While most newly opened factories are small factories. The closures that occurred mainly from large factories is a reflection that the problem of factory closures is caused by big-picture structural factors that affect the entire industry. Another set of data that reinforces the worrying situation in the industrial sector is the increase in bad debt in the manufacturing sector, which has clearly shown signs of accelerating and reflects the severe problems in the Thai industrial sector. rather than a temporary slowdown. This led to the need to close the factory and affected the ability to repay debt . KKP Research finds a correlation between industries with high factory closures and industries with higher bad debt. by factories in industrial groups that have more shutdowns There is a tendency for the increase in bad debt to be higher as well. If dividing the product categories in the Thai manufacturing sector into 3 groups: Production that still moves according to normal cycles This is a product group that is likely to recover if demand returns to grow, accounting for approximately 47% of the total production value. Production decreased due to high inventories. Industry groups that have recently had higher than normal inventory levels and may return to improve somewhat when inventory begins to decline. Production is affected by structural factors, such as the production of Hard Disk Drives being replaced by Solid State Drives, which has affected HDD production to continue to shrink for a long time. or steel production that has been replaced by competition from Chinese products. KKP estimates that thi s group of products accounts for more than 35% of the total value added in the manufacturing sector. Data on the opening and closing of factories in the Thai industry from the perspective of KKP Research is a reflection and result of the loss of competitiveness of the Thai industrial sector that is becoming more and more severe, which will be a negative factor for the Thai economy in the future. The overall picture relies on value added from the industrial sector for more than 35% of the economic value. Since the post-Covid period, it has become a service sector that has expanded well while the industrial sector has continued to shrink. This is despite the latest month's data on Thai industrial production returning to positive in more than a year and many parties It is still hoped that the improved global economic and trade conditions will return to help the Thai industrial sector return to expansion. However, KKP Research is increasingly concerned about the long-term situation of the Thai industry. For the following reasons Technological changes in some key product groups, such as the shift from internal combustion engine cars to EV cars. In the past, cheap EV cars have been exported from China to Thailand and have had a significant impact on both sales and prices. ICE cars in Thailand or the change from using HDD to SSD which will continue to become more severe in the future. Especially when EV and SSD prices tend to continue to decrease. Makes it possible to replace old technology faster and wider. Intensifying competition from Chinese products At present, Thailand's trade deficit with China is continuously increasing. And not only products in the automotive group that come into Thailand. But Thailand imports from China in a significantly increased proportion in many product groups compared to total imports. Including consumer products that have a lower cost than products produced in Thailand. International trade protectionist measures are likely to intensify. Especially after the US presidential election. In which case Trump wins the election. There are likely to be additional trade protectionist measures from China and the world. This increases the risk of slowing down global trade as a whole. And there is a chance that products from China will flood into ASEAN, including Thailand, in order to drain Chinese products to other export markets. Source: Thai News Agency