BANGKOK (REUTERS) - Thailand's economy contracted less than expected in the third quarter as businesses started a slow recovery from the coronavirus-driven slump in activity, while the reopening of the tourism sector raised hopes of a steady revival.

The government on Monday (Nov 15) upgraded its economic growth outlook to 1.2 per cent this year, compared with a previous forecast of 0.7 per cent to 1.2 per cent expansion.

It projected 3.5 per cent to 4.5 per cent growth next year, thanks to an easing of Covid-19 curbs and a reopening to overseas travellers to reboot its vital tourism industry.

South-east Asia's second-largest economy tumbled 6.1 per cent last year.

The economy shrank a seasonally adjusted 1.1 per cent in the September quarter from the previous three months, data from the National Economic and Social Development Council (NESDC) showed, versus a forecast 2.5 per cent drop in a Reuters poll, and a revised seasonally adjusted 0.1 per cent growth in the June quarter.

From a year earlier, gross domestic product (GDP) shrank 0.3 per cent in July-September, a shallower-than-expected fall than the forecast 0.8 per cent drop, and against a revised 7.6 per cent growth in April-June.

"We expect GDP to rebound strongly in the final quarter now that cases are falling, restrictions are being lifted and the vaccine roll-out is gaining momentum," said Mr Gareth Leather, senior Asia economist at Capital Economics.

Increased exports and fiscal measures helped to limit the fallout from the pandemic. The NESDC expects exports to grow 16.8 per cent this year versus a 16.3 per cent rise seen earlier. It predicted 4.9 per cent export growth next year.

Exports in the third quarter grew 15.7 per cent from a year earlier, but private consumption was hurt by Covid-19 curbs and dropped 3.2 per cent.

The agency predicted 200,000 foreign tourists this year, compared with 150,000 seen previously, and forecast five million visitors next year. There were 40 million foreign tourists in 2019.

With a fraction of foreign tourists expected compared with pre-pandemic levels, most analysts expect the economic recovery will be slow.

The government has introduced billions of dollars of relief measures to help revive the economy while the central bank has left its key rate at a record low of 0.50 per cent since May last year.

"Beyond the fourth quarter, the prospects for the recovery hinge on how quickly the tourism sector recovers," said Mr Leather.