Thai Q4 GDP slumps due to floods; seen improving in 2012

Friday, 24 February 2012 00:01 -     - {{hitsCtrl.values.hits}}

BANGKOK (Reuters): Thailand’s economy, which shrank a record 10.7 per cent in the fourth quarter due to devastating flooding, is expected to bounce back sharply this year as the government and major exporters step up reconstruction spending after the disaster.

While some economists said the worst performance on record in the final quarter of 2011 supported the case for another policy rate cut by the central bank at its next meeting on March 21, others expect it to be left unchanged at 3 per cent.



Growth in 2011 was just 0.1 per cent, dragged down by the country’s worst flooding in half a century that damaged farmland and inundated big industrial zones in October, hitting thousands of factories, particularly car and electronics makers. Many of the affected firms are still shut and may take awhile to reopen.

“Post-flood demand plus government spending for post-flood restoration should be able to support the economy to a certain degree,” said Pimonwan Mahujchariyawong, economist at Kasikorn Research Center, adding investment from the private sector would also support growth.

She expects rates to stay on hold until the end of 2012.

The Bank of Thailand cut its policy rate in November and more recently in January, to help the economy get through the floods, but has said the current rate of 3 per cent is supportive for growth, adding that inflation risks still persist.

“The data does show a negative surprise, but the market should not be too concerned about it ... What we should be concerned with is how the rebound this year will shape up,” said economist Nuchjarin Panarode of Capital Nomura Securities

“We believe the data has implications for a further rate cut at the central bank’s next meeting in March,” she said.

The 10.7 per cent quarterly contraction in Southeast Asia’s second-largest economy compared with the 7.8 per cent fall expected in a Reuters poll. On a yearly basis, it contracted 9.0 per cent, worse than economists’ forecast of 5.5 per cent.

The National Economic and Social Development Board (NESDB), which compiles the GDP data, said the real flood impact last year had been much worse than expected, with the damage estimated at about 328 billion baht ($10.7 billion), or equivalent to 3.7 per cent of GDP.

It had predicted economic growth of 1.5 per cent for 2011.

In contrast, the Philippine economy grew 3.7 per cent in the fourth quarter from a year earlier, while Malaysia’s annual growth was 5.2 per cent in the final quarter, albeit slowing from the previous three months..

The baht was barely changed at 30.74/76 per dollar after the data and continued to trade around the same levels. The stock market was closed when the data came out. It was up 0.26 per cent at 0733 GMT.

The NESDB also raised its forecast for growth in 2012 to 5.5-6.5 per cent this year, up from the 4.5-5.5 per cent projected in November, helped by public investment on flood defences and economic policies, including wage increases. This economic boost could add to inflationary pressures.

“Q1 (GDP) will definitely be positive but not much as factories have just recovered. But Q2 will be much better,” said Arkhom Termpittayapaisith, secretary-general of the NESDB, told a news conference.

“It’s possible that the economy will grow 7 per cent this year because of high investment.”

That compares with the 4.9 per cent growth forecast by the central bank earlier this month and the 4.2 per cent predicted in a Reuters poll last week..

Arkhom said the economy was expected to return to normal in the second quarter, provided that there will be no more floods.

Key industries are expected to recover quickly, including tourism, which should attract 21 million foreign tourist arrivals this year, up from 19.1 million last year, he said.

The central bank, however, has said manufacturing may not fully recover until the third quarter of this year, meaning exports will remain weak in coming months as industrial goods account for about 65 per cent of shipments.

The agency trimmed its export growth forecast to 17.2 per cent for this year from 19 per cent forecast earlier, and compared with the 7.8 per cent growth projected by the central bank in the face of faltering global demand.

The government is rushing to implement water management projects worth 300 billion baht ($9.8 billion) to prevent a repeat of the country’s worst flooding in half a century. .

It raised the budget deficit for the current fiscal year to September to 400 billion baht from 350 billion baht after the flooding to help finance the water projects.

It has also pushed through a decree allowing it to borrow 350 billion baht for the flood defences and another one making the central bank responsible for servicing a bailout debt.

 That will free up some 60 billion baht from the annual fiscal budget, allowing the government to borrow more.

However, the decrees have been opposed by the opposition, which has filed a complaint to the Constitution Court. .

Arkhom said the GDP growth forecast for 2012 did not take into account the planned 350 billion baht funds.  ( $1=30.7 baht)

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