BANGKOK: Thailand’s economy outpaced expectations in the first quarter to expand at the fastest annual rate in three years, providing some relief for a military government that has struggled to stimulate growth in the two years since it seized power. But with exports expected to shrink for a fourth year running and consumption crimped by high household debts and the worst drought in a decade, economists say more fiscal stimulus and lower interest rates may be needed to prevent growth momentum from stalling.
South-East Asia’s second-largest economy grew a seasonally adjusted 0.9% in the first quarter, boosted by government spending and tourism, the National Economic and Social Development Board (NESDB) said yesterday. The pace was faster than 0.8% in the fourth quarter and 0.6% forecast in a Reuters poll. From a year earlier, growth was 3.2%, better than 2.8% previously and higher than economists’ estimates.
Thailand’s economy remains fragile two years after a military coup ended months of political unrest as its main growth engines – exports and domestic demand – remain weak. “Thailand’s economy got off to a solid start to 2016, but high household debt and continued political uncertainty are likely to drag down growth again over the coming quarters,” said Krystal Tan, economist at Capital Economics based in Singapore.
The NESDB expects exports to shrink 1.7% this year, versus 1.2% growth it predicted earlier. Accounting for about two-thirds of GDP, exports have fallen in the past three years due to tepid global demand and China’s slowdown. Despite the upside surprise in GDP, the Bank of Thailand (BoT) could still cut rates if growth falters, economists say. “With likely subtrend growth momentum and baht outperforming regional currencies, we do not think one can rule out another rate cut by the BoT later this year,” said Santitarn Sathirathai, senior economist at Credit Suisse in Singapore.
The BoT held rates steady last week but saw higher risks to growth from slowing consumption and investment. The NESDB revised its 2016 GDP growth forecast to 3%-3.5% from 2.8%-3.8%. Growth last year was 2.8%. Tourism and fiscal spending would underpin growth this year, while expected mid-year rains should ease drought, NESDB head Porametee Vimolsiri told reporters.
