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Thailand’s Manufacturing Growth Slows as Demand Cools

Thailand’s industrial production growth slowed in July as a faltering global recovery cooled demand for the country’s electronics, giving the central bank less room to keep raising interest rates.

Manufacturing output rose 16.3 percent from a year earlier, after a revised 21.9 percent gain in June, the Bank of Thailand said today. The median estimate of 14 economists in a Bloomberg News survey was for a 15.3 percent increase.

The Bank of Thailand raised its benchmark interest rate for the second straight meeting to 1.75 percent last week after the economy overcame political unrest to expand faster than estimated last quarter. Prime Minister Abhisit Vejjajiva said Aug. 27 growth will ease in the second half as the global rebound slows.

“We will start to see moderating growth in the second half for both exports and production,” Pornthep Jubandhu, an economist at Siam Commercial Bank Pcl in Bangkok, said before the report. Real demand is “quite weak” and the central bank may have to pause after raising the interest rate again in October, he said.

Southeast Asia’s largest economy after Indonesia grew 9.1 percent in the second quarter as exports countered the impact of political clashes that killed at least 89 people. The central bank expects the economy to expand as much as 7.5 percent this year, which would be the strongest pace since 1995.

Low Rates

The central bank on Aug. 25 signaled it may raise borrowing costs further, saying the current rate is still “very low”.

Deputy Governor Bandid Nijathaworn said last week “the reduction of monetary accommodation is necessary to make sure the economic recovery is sustained,” as the rebound will lead to an acceleration in inflation. The growth momentum may continue in the second half of the year as export orders are still at a satisfactory level, he said.

Thailand’s exports gained 21.2 percent in July from a year earlier to $15.5 billion, the central bank said today, after previously reporting shipments rose 47.1 percent in June. Imports rose 36.5 percent last month, and the country had a trade deficit of $791 million in July, compared with a $2.5 billion surplus the previous month.

Thailand recorded a current-account deficit of $1.13 billion last month. The measure comprises the difference between exports and imports of goods and services, investment income and remittances. Trade makes up about 70 percent of the current account, and tourism contributes most of the service industry’s 30 percent component.

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