Thailand’s Economic Growth Slows, With Yuan Denting Outlook

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Thailand’s economic growth slowed in the second quarter as improving government spending and tourism failed to counter weak local demand and exports, with the outlook clouded by drought and the yuan’s devaluation.

Gross domestic product gained 2.8 percent in the three months through June from a year earlier, the National Economic and Social Development Board said in Bangkok Monday. That matched the median estimate in a Bloomberg survey, and compares with 3 percent in the previous period. GDP grew 0.4 percent from the previous quarter.

Prime Minister Prayuth Chan-Ocha has said he will reshuffle his cabinet as pressure increases to bolster an economy struggling with a slump in manufacturing and sliding exports. Last week’s unexpected yuan devaluation is an added wrinkle for the government, with the NESDB today cutting its forecasts for GDP growth and overseas sales this year.

“The yuan devaluation is not good news for Thailand, as it will put more pressure on our exports,” Pimonwan Mahujchariyawong, a Bangkok-based economist at Kasikorn Research Co., said before the report. “Government spending and tourism are the only two engines that can drive growth. But the outlook is dimmer now with the yuan move.”

The baht slipped 0.4 percent to 35.34 against the dollar as of 10:21 a.m. in Bangkok. It is among the worst performers in the past six months of 11 Asian currencies tracked by Bloomberg.

Investment Spending

The NESDB cut its GDP growth forecast for this year to 2.7 percent to 3.2 percent from an earlier estimate of 3 percent to 4 percent. It predicts exports will contract 3.5 percent from an earlier estimate of a 0.2 percent gain. Government spending will rise 11.6 percent in the second half, it said.

“The government will continue to accelerate budget disbursement and investment,” Arkhom Termpittayapaisith, NEDB’s secretary general, told a briefing. “We are determined to push forward spending to help support the local economy while global economic conditions aren’t good.”

The Bank of Thailand earlier this month left its benchmark interest rate unchanged at a five-year low, and said risks persist from the drought and China’s slowdown. The finance ministry has lowered its growth forecast thrice this year, even as the government has pledged higher investment spending in its budget for the fiscal year starting Oct. 1.

Manufacturing fell 0.7 percent in the second quarter from a year earlier, today’s data showed. Private consumption grew 1.5 percent, compared with 2.4 percent in the previous period.

“With the growth outlook fragile, rising downside risk to growth could elicit further monetary easing,” said Weiwen Ng, a Singapore-based economist at Australia & New Zealand Banking Group Ltd. “Still, monetary easing alone via the interest-rate channel seems insufficient to deal with this, and we look for the BOT to lean on allowing baht weakness.”