Thailand Economy Unexpectedly Expands on Post-Flood Recovery

Thailand’s economy unexpectedly expanded in the first quarter as factories resumed production and domestic consumption revived after last year’s floods. The baht rose.

Gross domestic product increased 0.3 percent in the three months through March from a year earlier, after contracting a revised 8.9 percent in the previous quarter, the National Economic and Social Development Board said in Bangkok today. The median of 18 estimates in a Bloomberg News survey was for a 0.5 percent decline.

Bank of Thailand Governor Prasarn Trairatvorakul said this month the monetary authority will refrain from further rate cuts because the pace of recovery is exceeding its expectations, even as Europe’s debt woes and higher oil prices pose risks to growth. Manufacturers are boosting output after the country’s worst floods in almost 70 years shut plants and disrupted production, with Honda Motor Co. saying March 31 its factory in Ayutthaya province will run at full capacity to meet rising demand.

“The post-flood rebound is progressing nicely, with a stronger-than-expected rebound likely to keep Bank of Thailand focused on future inflation risk,” said Sacha Tihanyi, a senior currency strategist in Hong Kong at Scotiabank, a unit of Bank of Nova Scotia. “We are going to see recovery ramp up. However, it’s not going to be at such a massive rate of growth.”

The baht rose 0.5 percent against the dollar as of 11:50 a.m. local time, the strongest level since May 14, according to data compiled by Bloomberg. The SET Index fell 1 percent.

Exit Stimulus

The central bank left borrowing costs unchanged for a second meeting on May 2 and later raised its growth forecast for 2012 to 6 percent. The International Monetary Fund said this month that Thailand should be ready to raise interest rates and exit fiscal stimulus when the economic recovery strengthens.

Asian nations face risks stemming from Greece’s inability to form a new government after an inconclusive election that could deepen Europe’s debt crisis, adding to challenges from a China growth slowdown and an uneven U.S. recovery.

Weak European demand is particularly troubling for countries including Singapore and Thailand, where exports make up the equivalent of half or more of gross domestic product.

Capacity utilization and exports will pick up in the second quarter as more companies recover after the floods, Arkhom Termpittayapaisith, secretary-general of the National Economic & Social Development Board said at a media briefing in Bangkok.

“Auto and electronics sector will return to full capacity and that will boost growth in the second quarter,” he said. “Growth may be 4 percent to 5 percent and will pick up speed in the third and fourth quarter,” he said, adding that the agency is maintaining its growth forecast for this year at 5.5 percent to 6.5 percent.

’Still Mild’

The recovery is “still mild,” he said, adding that the central bank must ensure monetary policy “remains supportive” to the economy, by either cutting or holding interest rates.

Malaysia will report May 23 its first-quarter GDP growth slowed to 4.6 percent from a year earlier, according to the median forecast in a Bloomberg News survey. That compares with a 5.2 percent expansion in the previous three months.

Thai Finance Minister Kittiratt Na-Ranong said last week the country could achieve 15 percent exports growth this year. Car production rose 11 percent to a record 190,935 units in March from a year earlier, with sales jumping 19.3 percent, the Federation of Thai Industries said last month.

Inflation slowed in April to the lowest in more than two years on state subsidies and easing food prices, the Commerce Ministry said May 1. While industrial output and exports fell in March, consumer confidence and business sentiment bounced back.

Under Control

“Manufacturing output, tourism and private-sector spending look to have risen strongly in the first quarter, reversing their slumps late last year,” Sukhy Ubhi, an economist at Capital Economics Ltd. in London, said before the report. “With inflation under control for now, we think the BoT is likely to stay on hold at least until the third quarter.”

Inflation risks remain because of higher wages and oil and a faster-than-expected economic recovery, the central bank said this month. Prime Minister Yingluck Shinawatra has said she is worried about an increase in the cost of living.

Factories of Hana Microelectronics Pcl, Thailand’s largest semiconductor packager, are operating at between 50 percent and 55 percent of their production level from before last year’s floods, Chief Executive Officer Richard Han said in a Bloomberg Television interview today.

“We didn’t have support in terms of relief and tax,” he said. “A lot of SMEs are also struggling because of the 300-baht minimum wage increase,” he said. Pay in Bangkok and six other provinces rose to 300 baht ($9.6) a day in April. In the rest of the country, it will initially climb an average of 40 percent.

Thailand’s economy, the biggest in Southeast Asia after Indonesia, grew 11 percent last quarter from three months earlier, compared with a revised 10.8 percent contraction in the previous period. The median forecast in a Bloomberg News survey was for a 10 percent gain.

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

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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