Thailand Cuts Growth Outlook as Economy Enters Recession

Thai Growth Slows as Scope for Monetary Stimulus Seen Limited
A vendor arranges bouquets of orchids for sale at the Pak Khlong market in Bangkok. The central bank cut its 2013 GDP growth forecast to 4.2 percent from 5.1 percent on July 19, citing weaker-than-expected exports. Photographer: Dario Pignatelli/Bloomberg

Thailand cut its 2013 growth forecast as the country entered recession for the first time since the global financial crisis, with rising household debt limiting central bank scope to support the economy. Stocks fell.

Gross domestic product unexpectedly shrank 0.3 percent in the three months through June from the previous quarter, when it contracted a revised 1.7 percent, the National Economic and Social Development Board said in Bangkok today. Only one of 11 analysts surveyed had predicted a decline. The economy rose a less-than-estimated 2.8 percent from a year earlier.

Thai policy makers are struggling to sustain growth as government spending plans are delayed, while a slowdown in China curbs demand for exports from Southeast Asian nations. The Bank of Thailand will hold the policy interest rate at 2.5 percent at its Aug. 21 meeting, a Bloomberg survey showed, after Assistant Governor Paiboon Kittisrikangwan said last month that household debt at 80 percent of GDP limits the scope for further easing.

“Exports have remained weak, while domestic demand is also weakening, and the infrastructure spending plan is also delayed,” said Kozo Hasegawa, a Bangkok-based foreign-exchange trader at Sumitomo Mitsui Banking Corp. “The outlook for the economy is more severe now,” he said, adding that he expects the central bank will keep borrowing costs on hold this week.

The state agency cut its full-year expansion forecast to 3.8 percent to 4.3 percent from 4.2 percent to 5.2 percent. It lowered its export growth target to 5 percent from 7.6 percent.

Stocks Slump

The Thai baht slipped 0.3 percent to 31.36 against the dollar as of 1:09 p.m. in Bangkok. It has lost almost 5 percent in the past three months, after reaching its highest level since 1997 in April. The benchmark Stock Exchange of Thailand Index fell 2.1 percent, heading for its biggest drop since July 25.

The Thai central bank cut its 2013 GDP growth forecast to 4.2 percent from 5.1 percent on July 19, citing weakening exports. Shipments grew 0.95 percent in the first six months.

The monetary authority lowered borrowing costs by 25 basis points in May. Singapore last week cut its forecast for exports this year, while Indonesia this month reported second-quarter GDP growth of less than 6 percent for the first time since 2010.

Thai consumer confidence fell to the lowest in seven months in July on rising political unrest and the weakening economic outlook. Prime Minister Yingluck Shinawatra imposed the Internal Security Act for eight days this month to contain protests as the parliament debated an amnesty bill for political protesters.

Car Sales

The administration has tried to speed up its budget disbursements as 2 trillion baht ($64 billion) allocated for infrastructure spending and 350 billion baht for water-management projects have been put on hold.

Toyota Motor Corp. said last month industrywide car sales in Thailand will fall 9.5 percent this year. Total bank loans grew 12.8 percent in the second quarter from a year earlier, compared with 13.2 percent in the previous three months, central bank data showed earlier.

Private consumption grew 2.4 percent in the second quarter from a year earlier, slowing from a 4.4 percent pace in the previous period, today’s data showed. Government consumption rose 5.8 percent from 4.4 percent in the previous three months.

“We still have a chance to grow at the high end of the range if we can speed up budget disbursements and try to boost exports,” Arkhom Termpittayapaisith, secretary-general of the state planning agency, told a news conference today. “Economic growth in the second half will rely more on private investment and tourism, as growth in exports and household spending are still limited. Still, those factors are sensitive to the political situation, making it a key risk for economic growth.”

While the delayed public spending and last year’s high base following the slowdown after the 2011 floods are a challenge, lower inflationary pressure “allows monetary policy to be accommodative,” Arkhom said. Consumer prices rose 2 percent in July from a year earlier, compared to 2.25 percent in June.

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