11% Q1 growth for Thailand

Consumption and investment among main drivers

Thailand’s economy grew a record 11% in the first quarter from the previous three months, rebounding from last year’s severe flooding, and strong full-year growth is expected.

BANGKOK: Thailand’s economy grew a record 11% in the first quarter from the previous three months, rebounding from last year’s severe flooding, and strong full-year growth is expected due to a jump in consumption and investment after the disaster.

The January–march expansion was the highest since Thailand started measuring quarterly gross domestic product (GDP) in 1993 but given worries about the eurozone, economists said the central bank would probably hold its policy rate at 3% on June 13 and maybe for the rest of the year.

“Looking forward, we believe that risks to growth will shift from capacity constraints to weak external demand due to the European debt crisis,” said Usara Wilaipich at Standard Chartered Bank in Bangkok, forecasting no rate change this year.

The quarterly growth of 11% reported yesterday by the National Economic and Social Development Board (NESDB) beat the 10.2% expected in a Reuters poll, and came after a revised record contraction of 10.8% in the final quarter of 2011 due to the floods.

We believe that risks to growth will shift from capacity constraints to weak external demand due to the European debt crisis. — USARA WILAIPICH OF STANCHART

Household consumption, private investment and a recovery in the service and manufacturing sectors after the floods, were the main drivers of growth in South-east Asia’s second largest economy, the planning agency said.

To help business deal with the floods, the Bank of Thailand (BOT) cut its policy rate in November and again in January before leaving it steady at the two most recent meetings. It recently said the recovery had gained traction and that inflationary pressures were growing.

“The Bot’s optimism on the economy was likely validated by firstquarter numbers, though we doubt the optimistic year-end growth projections, especially if protracted eurozone uncertainties and slowing demand for Thai agricultural shipments stymie the pace of the recovery in the external sector,” said Radhika Rao, an economist at Forecast in Singapore.

She expected the policy rate would be held steady until the yearend to avoid choking off the tentative recovery.

The worst floods in half a century hit industrial zones at the heart of the economy last October, with car and electronics makers the worst hit. Factory output fell 4.2% in the first quarter from a year earlier and exports were down 4%.

Around a quarter of the affected plants have still not reopened, but the central bank has said manufacturing should get back to normal by the end of June, sooner than it had first expected.

Still, the economy grew just 0.3% from a year earlier, indicating the extent of the catastrophe, even though that beat the forecast of a 0.5% contraction in the Reuters poll. — Reuters