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Thailand's Q2 economic growth slows but beats expectations

Thailand's Q2 economic growth slows but beats expectations

Thailand is the latest Southeast Asian country to see a slight slowdown in economic growth during the second quarter, but the latest figures still came in ahead of expectations.

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By Jay Banerjee 21.08.2018

Thailand is the latest Southeast Asian country to see a slight slowdown in economic growth during the second quarter, but the latest figures still came in ahead of expectations as an uptick in exports and enhanced domestic demand supported a steady rise for the period.

Late last week, Malaysia’s government said that its GDP growth had cooled during Q2, and Thailand followed suit on Monday, announcing a GDP expansion of 4.6% year-over-year between April and June. This was lower than the 4.9% growth recorded during the first three months of the calendar year. 

The data released by the National Economic and Social Development Board (NEDSB) is encouraging overall, however, as economists polled by the Wall Street Journal had only expected growth to hit 4.5%. The board said that the easing in growth during the second quarter was due in part to government spending, tourism and manufacturing weighing down the economy. Expansion on a seasonally adjusted basis was 1%. 

Private consumption currently accounts for almost half of the economy in Thailand, and it saw a 4.5% rise from the same period a year ago, which is a notable improvement on the 3.7% gain recorded during Q1. Government spending also increased by 1.4%, following on from the 1.9% growth recorded between January and March, while private investment inched higher by 3.1%.

While the rate of overall growth has slowed, Thailand’s state planning agency said on Monday that it would not be revising its 2018 target and still expects to close the year with growth of between 4.2% and 4.7%. It also raised its projection for gains in exports.

While the US-China conflict continues to loom large, the NEDSB believes that the improving conditions of economies in the region with whom it has close trade ties will help boost shipments during the second half of the year. It bumped the forecast from 8.9% to 10%.

Exports have been a primary growth driver for Thailand in 2018, and they were robust once again during Q2, soaring to the tune of 12.3% year-over-year. While exports were strong, NESDB Deputy Chief Wichayayuth Boonchit said that public spending had not hit expected levels during the period, and tourism had also seen a drop-off.

Capital Economics Partner Krystal Tan gave a cautious forecast for the remainder of the year and into 2019, saying that growth will “slow gradually” during that time. She added: “On the plus side, the government's infrastructure investment program is expected to gain momentum."

Thailand is currently the second-largest economy in emerging Asia, and it has enjoyed a steady uptick in growth for a few years. However, it has yet to fulfill its potential, as the health of its exports is the primary factor in whether it expands or not. Increasing levels of household debt have also crimped domestic demand, while excess industrial capacity is also a negative influence.

Thailand’s junta is attempting to drive growth after giving the green light to a raft of infrastructure projects, but more stringent procurement rules that came into force last year are limiting the effects of increased spending. Tourism is also an issue, as growth in numbers cooled to 9.1% in Q2, down from 15.4% in Q1. Manufacturing growth also slowed.

China is Thailand’s biggest market in terms of tourism, but a boat accident earlier in the summer that resulted in dozens of fatalities may reduce visitor numbers from the mainland. Just over 5.1 million Chinese people should visit Thailand during the second half of the year, according to the Tourism Ministry.

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