Thai economy grows more than expected, but remains sluggish

BANGKOK • Improving government spending and tourism failed to counter weak local demand, as Thailand's economy showed sluggish second-quarter growth despite better-than-expected figures.

Drought and devaluation of the yuan are crowding the outlook for the second half of the year, as economists hope South-east Asia's second-largest economy picks up pace in the face of a slump in manufacturing and sliding exports.

Data released yesterday showed that the economy grew 0.4 per cent in April-June on a seasonally-adjusted basis, up from 0.3 per cent in the previous quarter, though better than the 0.2 per cent pace expected by economists.

On an annual basis, growth was 2.8 per cent, the same as the poll, but down from 3 per cent in the first quarter, the National Economic and Social Development Board (NESDB) said.

Calling the data "unspectacular", OCBC Bank analyst Barnabas Gan predicted the drags to persist within the economy in the second half, given "high household debt and lacklustre external environment".

The government still hopes exports will improve later this year, helped by the weaker baht which has depreciated about 6.9 per cent against the dollar this year.

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

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," Kasikorn Research Centre's economist Pimonwan Mahujchariyawong said before the report, according to Bloomberg.

"Government spending and tourism are the only two engines that can drive growth. But the outlook is dimmer now with the yuan move."

The government still hopes exports will improve later this year, helped by the weaker baht which has depreciated about 6.9 per cent against the dollar this year. But global demand looks set to remain erratic, especially as China cools.

Prime Minister Prayut Chan-o- cha has said he will reshuffle his Cabinet, as pressure increases to bolster the economy. He added that he would change some ministers and appoint outsiders to the posts.

Policymakers have repeatedly cut growth forecasts as hopes for improvement failed to materialise.

Maybank Kim Eng's economist Tim Leelahaphan said: "Entering the new fiscal year, starting from October, the government has pledged to start disbursing the budget immediately, so that's positive for this calendar year as well."

A version of this article appeared in the print edition of The Straits Times on August 18, 2015, with the headline 'Thai economy grows more than expected, but remains sluggish'. Print Edition | Subscribe