The manufacturing production index (MPI) is now projected to grow by less than 1% this year, but industrial production is set to improve in the second half thanks to the recovery of business sentiment, says the Office of Industrial Economics (OIE).
The index fell for the 14th consecutive month by 6.6% in June after declining 4% in May.
Director-general Somchai Harnhirun said the latest figure has prompted the agency to project the MPI will grow below 1% this year compared with an earlier forecast of 1.5-2%. However, a final forecast will be made later this year and largely depend on the recovery of car production.
"The MPI continues to decline because operators have yet to increase production and still utilise inventory. An increase is likely in the fourth quarter," he said.
Factors crucial for MPI improvement are whether government policies can be implemented along with an increase of government spending and investment. Demand from trading partners including Japan is set to improve.
"While production is set to improve, factors such as the world oil price, the baht's appreciation and US tapering of quantitative easing remain a concern for Thai industry," said Mr Somchai.
In June, automotive production dropped 26.1% year-on-year to 160,452 vehicles due to declining domestic demand after the end of the first-time car buyer scheme.
In total, 2.2 million cars will be produced in 2014, down 10.46%, with domestic sales falling 24.59% to 1 million and exports down 6.37% to 1.2 million.
Production of electronics and electrical appliances improved 2.22% in the second quarter.
That followed increased demand for integrated circuits for use in consumer electronics. However, demand for appliances such as air conditioners, refrigerators and fans declined after the end of the hot season.
Food production is set to improve but the sector continues to experience supply problems.
Garment production slowed down in the first half due to decreased domestic and overseas orders.