Thai economy shrinks 2.2% in first quarter, first contraction in more than a year

BANGKOK (AFP) - Thailand's economy shrank 2.2 per cent in the three months to March from the previous quarter - the first contraction in more than a year - as manufacturing output fell, official data showed on Monday.

The decline followed a blistering year-long recovery from devastating floods in late 2011 that hit major factories north of the capital Bangkok and caused a double-digit drop in gross domestic product (GDP).

On a year-on-year basis, GDP expanded by 5.3 per cent in the first quarter of 2013, the government's National Economic and Social Development Board (NESDB) reported.

That marked a sharp slowdown from the fourth quarter of 2012, when growth hit a record high of 19.1 per cent, according to an updated estimate.

"The main drivers were domestic consumption and tourism," NESDB secretary-general Arkhom Termpittayapaisith said of the most recent quarter.

Growth in those sectors helped to offset a 5.9 per cent quarter-on-quarter slump in manufacturing, which had expanded rapidly last year, helped by a government scheme to encourage people to buy new cars.

"The expiry of a subsidy scheme for first-time car purchases appears to have hurt car sales in January and February," said Mr Daniel Martin, Asia economist at the Capital Economics consultancy firm.

"However, the effect has been shortlived - sales were back to a record high in March. Consumer confidence remains buoyant, while hikes in minimum wages at the start of this year should support spending," he added.

The NESDB reduced its forecasts for 2013 economic growth to 4.2-5.2 per cent, from a previous projection of 4.5-5.5 per cent, because of the weaker-than-expected first quarter performance.

Mr Arkhom said growth would be affected by a weaker-than-anticipated economic recovery in the United States, Europe and Asia.

The Thai government has urged the central bank to reduce its key interest rate - now at 2.75 per cent - to rein in a rising baht, which is bad news for exporters.

The Bank of Thailand last cut rates in October 2012 to help manufacturers.

Mr Martin said the Bank was "unlikely to risk undermining its credibility" by taking action when it meets next week, predicting that the policy rate would be left at its current level for the rest of the year.