Thai central bank rosy on recovery outlook

The army government has quickly disbursed overdue rice payments to farmers, but it is not clear if spending in rural areas has recovered as a result. — Reuters file pic
The army government has quickly disbursed overdue rice payments to farmers, but it is not clear if spending in rural areas has recovered as a result. — Reuters file pic

BANGKOK, June 30 — Thailand’s central bank signalled today that Southeast Asia’s second-largest economy would avoid recession this quarter, and said manufacturing and consumption “started to show signs of recovery” in May.

The Bank of Thailand (BoT) issued its rosy assessment while releasing a set of data that showed the economy, battered by months of political tensions, continued to generate weak data in May — during which the army took power.

The central bank, which earlier this month slashed its 2014 growth forecast nearly by half to 1.5 per cent, said gross domestic product in April-June would be up more than 1 per cent from the previous three months — meaning there will not be a second consecutive quarterly contraction.

For January-March, Thailand reported a 2.1 per cent contraction from the previous three months.

“Overall economic activities in May 2014 picked up slightly from the previous month,” the central bank said in a statement today. “Manufacturing production and private-sector spending started to show signs of recovery.”

Putting down a floor

Don Nakornthab, a senior BoT official, said that in the current quarter, the economy was expected to shrink 0.4 per cent from a year earlier, compared with the first quarter’s annual contraction of 0.6 per cent.

Analysts believe the military’s intervention may have put a floor under the country’s deteriorating conditions and shored up consumer confidence by defusing the threat of an escalation in political violence, but mending its deep-rooted political and economic malaise will take time.

The army government has quickly disbursed overdue rice payments to farmers, but it is not clear if spending in rural areas has recovered as a result, and if any post-coup rebound in spending would be enough to keep the economy from slipping into recession in the second quarter.

Likewise, the government has announced plans to fast-track stalled spending such as on major infrastructure projects, but even projects that get the green light soon are not expected to contribute greatly to growth until 2015.

Other key drivers of the economy also remain weak. Officials are counting on improvements in exports — which equal more than 60 per cent of the economy — and tourist arrivals, but it may be months before numbers show gains.

Waiting for better numbers

A business sentiment index the BoT uses — while improved to 48.6 in May from 44.3 in April — remained below 50, and hence companies’ confidence remains fragile.

Private credit rose 7.8 per cent in May from a year earlier, slowing from 8.6 per cent growth in April.

Credit Suisse said in a research note earlier today that it remained cautious on full-year growth prospects this year, predicting expansion of 1.1 per cent compared with the BoT’s recently-lowered 1.5 per cent forecast.

“We do not expect a very significant recovery in domestic demand this year,” it said, adding that exports could start to rebound if global growth accelerates in the second half.

Among other data released today, the central bank said Thailand had a current account deficit of US$664 million (RM2.1 billion) in May, slightly larger than April’s deficit.

Exports ‘remain sluggish’

Also, it said May exports declined 1.2 per cent from a year earlier — less than the 2.1 per cent fall the Commerce Ministry announced last week.

The BoT said its index on private consumption rose 0.5 per cent in May, compared with April, and was down 0.3 per cent from a year earlier.

Its private investment index was up 0.6 per cent, and down 2.9 per cent on year.

On seizing power on May 22, the army said it was needed to restore order and get the economy going after nearly seven months of political deadlock that hurt tourism, domestic demand and confidence.

Benjamin Shatil, economist with JP Morgan in Singapore, said that the May data looked “consistent with a stabilisation in activity and we expect that 2Q GDP will show a solid rebound after several quarters of lacklustre growth. However, we think that the high household debt situation, alongside moderate credit growth, is likely to dampen the recovery in consumer spending to an extent.”

Similar to other economies in the region, the Thai export sector “remains sluggish but we look for some acceleration in the second half of the year”, Shatil said. — Reuters

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