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Thailand’s Economy Shrinks More Than Estimated After Floods

Thai Economy Shrinks First Time in Two Years After Floods
A Honda Motor Co. automobile is crushed during a media event organized by Honda to demonstrate their handling of flood-damaged Honda vehicles at the Honda automobile plant in the Rojana Industrial Park in Ayutthaya, Thailand. Photographer: Dario Pignatelli/Bloomberg

Thailand’s economy shrank more than economists estimated as the worst floods in almost 70 years disrupted output by manufacturers from Western Digital Corp. to Honda Motor Co., putting pressure on policy makers to aid growth.

Gross domestic product declined 9 percent in the three months through December from a year earlier, after climbing a revised 3.7 percent the previous quarter, the National Economic and Social Development Board said in Bangkok today. The median of 14 estimates in a Bloomberg News survey was for a 5 percent drop. The economy grew 0.1 percent in 2011.

Southeast Asia’s second-largest economy contracted for the first time since 2009 after floods that killed more than 700 people and inundated two-thirds of the country dented exports already hurt by weaker European demand. Prime Minister Yingluck Shinawatra has pledged to spend 350 billion baht ($11 billion) on infrastructure and the Bank of Thailand cut the benchmark interest rate for a second straight meeting in January.

“Risks to growth in the first half of this year could remain on the downside,” Usara Wilaipich, a Bangkok-based economist at Standard Chartered Plc and a former country economist at the World Bank, said in an interview today. “We expect to see recovery in 2012 driven by domestic demand, while recovery in manufacturing and exports will take some time. There is still some room for the BOT to cut rates.”

The baht gained 0.1 percent to 30.76 against the dollar at 11:20 a.m. in Bangkok after reaching a three-month high of 30.64 earlier, according to data compiled by Bloomberg. The benchmark SET Index of stocks rose 0.4 percent.

‘Rebound Strongly’

Thailand’s GDP fell 10.7 percent last quarter from three months earlier, compared with a revised 0.8 percent rise in the previous period, today’s report showed.

“The economy this year will rebound strongly,” boosted by private and government spending, the economic board’s Secretary-General Arkhom Termpittayapaisith told a news conference today. First-quarter GDP growth will be “slightly positive,” and the pace will “gain more momentum” from the second quarter onward, he said, adding that 7 percent growth this year is “possible.”

The board forecasts growth of 5.5 percent to 6.5 percent this year, compared with a previous estimate of 4.5 percent to 5.5 percent. The economy’s expansion in 2011 was less than an earlier government estimate of a 1.5 percent gain.

China’s Move

The central bank said this month risks posed by the worsening global outlook and the impact of last year’s floods were greater than the threat of inflation. Weakening demand for the region’s goods has prompted policy makers from Indonesia to the Philippines to cut borrowing costs and support growth.

China cut banks’ reserve requirements for the second time in three months on Feb. 18 as Europe’s debt crisis and a cooling property market threaten economic growth.

The Bank of Thailand may consider cutting rates if inflation “continues to surprise on the downside,” said Wilaipich, adding she expected a “wait-and-see approach” at the next policy meeting in March.

Thai inflation slowed for the second consecutive month in January. While consumer confidence has gained since November, political uncertainty and rising energy costs are undermining sentiment, and economic recovery remains fragile, the University of the Thai Chamber of Commerce said Feb. 9.

Faltering Demand

The country’s manufacturing index fell for the fourth consecutive month and exports dropped for a second month in December after floods disrupted production, prompting manufacturers including Honda, Toshiba Corp. and Fujitsu Ltd. to cut their profit forecasts last month. Zurich Financial Services AG said last week its fourth-quarter profit fell 46 percent after losses from the floods and other natural disasters.

The Ministry of Commerce has targeted a 15 percent increase in exports this year, compared with a 17.2 percent gain in 2011. Overseas sales may cease their decline in January, according to a Bloomberg News survey. The data is due this week.

“Exports will continue to improve as plants resume production,” Kampon Adireksombat, an economist at Tisco Securities Co., said before the report. “Still, we need to accept the truth that the growth this year can’t be as high as two years ago because of faltering global demand.”

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