Thailand slips into recession

BANGKOK: Thailand’s economy shrank unexpectedly in the second quarter, slipping into a mild recession on weak exports and domestic demand, but worries over high household debt are likely to keep the central bank from cutting interest rates further.

The 0.3% contraction in South-East Asia’s second largest economy adds to a series of disappointing data casting a shadow over one of the world’s fastest growing regions.

Still, economists said they expected the economy to regain momentum in the second half, reducing pressure on the Bank of Thailand (BoT) to reduce rates. Most expect the benchmark policy rate to remain unchanged for the rest of the year.

The April–June contraction compares with a revised 1.7% decline in economic output in January–March, data showed yesterday. Most economists surveyed by Reuters had expected growth of 0.2% in the latest quarter.

A recession is typically defined as two consecutive quarters of contraction in gross domestic product (GDP).

On an annual basis, growth in April–June slowed to 2.8%, versus 3.3% in the poll, and compared with a revised 5.4% in January–March.

“The weaker-than-expected second quarter GDP growth further pressures the Bank of Thailand to cut its policy rate. However, high credit growth and rising household debt narrow the prospect for a lowering of interest rates,” said Bernard Aw with Forecast Pte in Singapore.

“The status quo on policy is the best way forward, particularly when the central bank sees a pickup in economic momentum in the second half,” he said.

After an interest rate cut in May, the Bank of Thailand’s monetary policy committee left the benchmark rate unchanged at 2.5% at its July meeting, citing high household debt as a concern. The central bank has said the current monetary settings are still appropriate for growth. It next meets on Aug. 21.

Thailand, like other Asian exporters, has been hurt by prolonged weakness in global demand that is weighing on industrial production. Domestic consumption – which makes up about half of the economy – also has declined due to the fading impact of government stimulus measures and recovery work after severe flooding in late 2011.
— Reuters

Delays in public infrastructure plans have also dragged on investment.

Also yesterday, the National Economic and Social Development Board (NESDB) cut its forecast for full-year economic expansion to 3.8%–4.3% from 4.2%–5.2% seen in May. A Reuters poll projected 4% growth.

That was because of slowing exports, a high base effect, the diminishing impulse from economic stimulus measures and the possibility of a delay in the implementation of public investment plans and the slow recovery of household income, the agency said in a statement.

It cut its export growth forecast to 5% from 7.6%, reflecting weakness abroad. The baht was little-changed at 31.30 per dollar after the data, while the stock market fell 1.8%.

However, the NESDB and private economists expected some improvement in coming months. The economy expanded 4.1% in the first half from a year before. — Reuters