Nov. 23 (Bloomberg) -- Thailand’s economy contracted less than estimated last quarter as a nascent global recovery and government spending began to pull the nation out of its first recession in a decade.

Gross domestic product fell 2.8 percent from a year earlier in the third quarter, after contracting 4.9 percent in the previous three months, the government said today. The median estimate of 16 economists in a Bloomberg News survey was for a 3.2 percent decline.

The benchmark stock index has risen two straight quarters since the start of April and the baht gained 4.5 percent against the U.S. dollar this year as companies including Hana Microelectronics Pcl report rising orders. The government, which predicted today the economy will resume growth this quarter, said a stable political situation is crucial for the recovery.

“In recent months, we have seen a stronger-than-expected recovery in exports,” said Rahul Bajoria, an economist at Barclays Capital in Singapore. “We believe that domestic consumption and manufacturing output should continue to increase in the coming months.”

Asia is leading a global recovery from recession as economies including China and India expand. Singapore, which raised its 2009 GDP estimate in October, said last week its economy will grow 3 percent to 5 percent in 2010 after shrinking as much as 2.5 percent this year. Malaysia said Nov. 20 that its recession eased last quarter.

‘Early Stage’

The Bank of Thailand said last month Southeast Asia’s second-largest economy is “out of recession”, citing improving employment and quarter-on-quarter GDP expansion. Still, the central bank has kept its benchmark interest rate unchanged at 1.25 percent since cutting it by 2.5 percentage points from December to April, refraining from following Australia in raising borrowing costs in recent weeks as it judged the nation’s recovery to be at “an early stage.”

The baht gained 0.1 percent to 33.21 per dollar as of 10 a.m. in Bangkok, according to Bloomberg data.

Manufacturing declined 5.9 percent last quarter, compared with an 8.7 percent drop in the previous three months. Private consumption fell 1.3 percent, the smallest drop in three quarters, while government spending rose 4.7 percent. Total investment slid 6.3 percent, easing from a 10.2 percent fall the previous three months.

Thai exports may expand 10 percent in 2010 after declining 13.7 percent this year, the government said today.

Signs of Recovery

“The third quarter numbers show clear signs of recovery,” Ampon Kittiampon, secretary-general at the National Economic and Social Development Board, the government’s economic advisory body, said in Bangkok today. “The government has to go ahead full steam on investments and restore confidence in the country. The political situation must be stable to ensure continued policy implementation. This is the most important thing.”

The government expects the Thai economy to expand 2.7 percent to 3.2 percent this quarter, Ampon said. Thailand’s exports dropped the least in a year in October as more than $2 trillion in stimulus by governments worldwide helped revive global demand.

Hana Microelectronics, which makes parts for computers and mobile phones including Apple Inc.’s iPhone, has restored its workforce to “pre-crisis” levels and will spend about $20 million by March 31 to expand capacity and meet rising demand, Chief Executive Officer Richard Han said Nov. 17.

Minor International Pcl, a Thai operator of hotels and restaurants, expects its revenue to grow at least 10 percent next year as the economy recovers, the Bangkok Post cited Chief Financial Officer Pratana Mongkolkul as saying last week.

Full-Year Forecast

The economy grew 1.3 percent in the third quarter from the previous three months, the government said. That compared with the 2.3 percent median forecast of 12 economists surveyed by Bloomberg News.

The $261 billion economy won’t shrink more than 3 percent this year and may expand 3 percent to 4 percent next year, the economic agency said today. The Bank of Thailand expects GDP to decline as much as 3.5 percent in 2009 and expand as much as 5.3 percent next year.

Thailand’s consumer confidence fell for the first time in five months in October on concern that the economic recovery may be derailed by rising oil prices, political tension and a court case that has stalled 76 government-approved projects amid pollution complaints.

Political Unrest

At least five people were injured after a bomb exploded at a Nov. 15 protest against former Prime Minister Thaksin Shinawatra, the Nation newspaper reported last week. Power in Thailand has shifted between parties allied to Thaksin and his opponents since the 2006 coup that ousted him, with protests and leadership changes hurting successive governments’ ability to implement spending plans.

“The economic recovery may be disrupted if political unrest reemerges,” said Dusit Nontanakorn, Chairman of the Thai Chamber of Commerce. “We just hope all parties can reconcile soon. We shouldn’t fight when the economy remains in crisis.”

Prime Minister Abhisit Vejjajiva has managed to stay in power for almost a year and implemented a 116.7 billion-baht stimulus package in the first half of 2009. He plans to spend 1.3 trillion baht on transportation, logistics, health and education projects over three years to help revive the economy.

To contact the reporters on this story: Suttinee Yuvejwattana in Bangkok at Suttinee1@bloomberg.net

Last Updated: November 22, 2009 22:54 EST