Domestic consumption and exports remained weak in May, while the impetus from the government's first-time car buyer scheme ran out of steam, pointing to a continued lacklustre economy in the second quarter, says the Bank of Thailand.
Mathee Supapongse, the central bank's senior director for macroeconomic and monetary policy, reiterated it will slash the full-year growth forecast from 5.1% on July 19.
Porametee Vimolsiri, deputy secretary-general of the National Economic and Social Development Board, on Thursday said this year's gross domestic product (GDP) will likely grow below 5% in its forecast of 4.2% to 5.2%, while the Fiscal Policy Office trimmed its projection to 4.5% from 4.8%.
The weaker-than-expected GDP growth in the first quarter of 5.3% year-on-year, with anaemic domestic consumption and private investment as well as China's economic slowdown, compelled policymakers, authorities and privately owned research houses to cut their growth estimates.
The sober numbers encouraged the central bank's Monetary Policy Committee to cut the policy rate for the first time this year by 25 basis points to 2.5% at its May 29 meeting.
China's economic slowdown is a concern and warrants close monitoring, said Mr Mathee, adding that the central bank expects the Chinese economy to grow by 7-8% this year.
"Fragile global demand weighed on merchandise exports, which in turn affected manufacturing production and private investment. The tourism sector, however, continued to expand robustly," the central bank said in a statement.
It reported a slowdown in domestic consumption in May, contracting by 0.2% year-on-year in the private consumption index.
In April, the private consumption index shrank 1.7%.
Rising household debt and a decline in car purchases resulting from the delivery of most cars under the first-time car buyer scheme contributed to a dip in consumer spending, said Mr Mathee.
He said the Bank of Thailand will continue monitoring rising household debt and slowing domestic consumption amid tighter loan approvals by local banks.
The private investment index in May fell by 3.3% year-on-year compared with a 1.1% contraction in April.
The industrial sector scaled back investment in equipment and machinery following the end of the first-time car buyer tax rebate, while investment in the construction sector backtracked after the post-flood recovery.
Regarding baht volatility, Mr Mathee said emerging markets experienced currency volatility following reports that the US Federal Reserve will begin curbing its monetary stimulus soon.
In the meantime, the Kasikorn Research Center trimmed this year's economic growth forecast to 4% from 4.8% due mainly to China's economic slowdown and tepid domestic consumption and private investment.
China is Thailand's biggest trade partner, taking up 12% of Thai exports.
The research house also slashed export growth this year to 4% from 7%.