Thailand’s manufacturing production may have risen 4% in August

Manufacturing production and export volume data for August and CPI for September are on tap this week. Production and export volume data will be crucial for the guidance it gives for third quarter GDP and full year growth. Export value and volume are up by 25% YoY and 15% YoY in July while production is near-zero in smoothed YoY terms in the same month, suggesting a gap of 10-15% between production and exports.

August export value growth registered 31% YoY data out last week showed. As such, the prolonged divergence between exports and production simply cannot persist forever and with exports holding up, production is likely to pick up sharply. A pick up of 4% MoM in production appears probable, which translates to near-6% YoY growth. Strong ramp up in production in August and September appears more likely than not despite the ongoing debt crisis and weak global sentiment. This should lift third quarter GDP growth to double-digits QoQ.

Barring a sentiment-induced sharp fall-off in G3 and global growth in 4Q11, fourth quarter growth should not be far from trend rates of 4%. Such would point to growth of about 4.5% in 2011, well above consensus. Despite this, the government is pushing ahead with all its expansionary fiscal policies that seem destined to end in inflation and /or lost market share. In this backdrop, it may be difficult for the central bank to pause on policy for a considerable period of time.