Q3 likely to stay frigid

Q3 likely to stay frigid

2.4% year-on-year GDP growth projected

Construction workers renovate a building in Bangkok. The National Economic and Social Development Board will release the third-quarter GDP figure today and it is expected to be lower than the growth forecast as the lacklustre economy continues. PATIPAT JANTHONG
Construction workers renovate a building in Bangkok. The National Economic and Social Development Board will release the third-quarter GDP figure today and it is expected to be lower than the growth forecast as the lacklustre economy continues. PATIPAT JANTHONG

Year-on-year growth is likely to show further cooling in the third quarter due largely to last year's high base effect and prolonged sluggishness in domestic demand and private investment, say economists.

GDP growth on a quarterly basis will continue gaining traction thanks to higher public expenditure and growth in net exports, however.

Third-quarter economic growth is projected to expand at a 2.4% annual rate, and 0.6% on a quarter-on-quarter seasonally adjusted basis, said Sarun Sunansathaporn, an economist in the research department at Bank of Ayudhya (BAY).

The economy expanded by 3% and 2.8% year-on-year in the first and second quarters, respectively. However, the economy on a quarterly basis grew a seasonally adjusted 0.3% in the first quarter, creeping up to 0.4% in the three months through June on the back of lacklustre private consumption, continuous export contraction and ebbing private investment.

GDP growth in the first half then came in at 2.9%. The Bank of Thailand earlier cut the full-year growth forecast to 2.7% from 3%, and the Fiscal Policy Office (FPO) has trimmed the growth estimate to 2.8% from 3%.  

The government's think tank, the National Economic and Social Development Board, is due to release the third-quarter GDP figure today, and it is expected to follow in the footsteps of the central bank and the FPO by lowering the GDP growth forecast from the current range of 2.7% to 3.2%.

Besides continuous tepid growth in domestic consumption and private investment, last year's high-base effect contributed to lower year-on-year economic growth expected in the third quarter, Mr Sarun said.

Thailand's economy grew at 1.1% year-on-year during the third quarter last year, up from 0.4% growth the previous three months and a 0.6% contraction in the first three months of 2014.

"We believe a robust increase in public spending and a substantial contribution from net exports to GDP growth, because of the large swing in the current account surplus, could overshadow the sluggishness of private domestic demand from July to September," he said, referring to a recovery in quarter-on-quarter GDP growth momentum in this year's third quarter.

Net exports are defined as the value of a country's total exports, including goods and services, minus the value of total imports in order to calculate a country's aggregate expenditure.

Exports in baht terms saw a strong rebound in September, expanding by 5.5% year-on-year, compared with a contraction of 5.5% in US-dollar terms in the same period, he said.

Despite a decline in the third quarter's tourist arrivals due to the bombing incidents in August, year-on-year tourism growth from July to September remained positive, acting as one of the growth drivers in the period, said Mr Sarun.

Growth of private consumption in September turned positive for the first time in six months, reflecting a pickup in confidence among consumers in accordance with a number of government stimulus measures implemented recently, he said.

Private Consumption Indicators (PCI) expanded by 0.4% year-on-year in September, up from August's contraction of 1.4%, according to Bank of Thailand data.

The PCI declined by 1.1% year-on-year in the third quarter, up from a contraction of 1.2% in the preceding quarter.

BAY forecasts full-year GDP growth at 2.7% in 2015, with a 5% contraction in annual exports. 

Nalin Chutchotitham, HSBC's Thailand economist, expects third-quarter growth will expand by 2.7% year-on-year and 0.9% quarter-on-quarter, driven by a slight pickup in both private consumption and private investment coupled with net exports generated from tourism and savings from lower prices of oil imports.

"Slow recovery momentum is projected for third-quarter economic growth," she said.

"We have to wait to determine whether government stimulus measures can shore up investment and consumption in the coming periods."

Despite a rise in public consumption and growth in net exports, subdued private consumption resulting from seasonal factors and low farm income, lacklustre private investment and a fall in inventory products are identified as factors contributing to lower year-on-year growth in the third quarter, Ms Nalin said.

"It's difficult to indicate specific sectors' contributions due to last year's base effect, but the private sector remains a drag on third-quarter GDP growth," she said.

Ms Nalin said GDP growth in the second half was expected at 2.3%, while this year's annual economic growth is forecast at 2.6%, with a 4.8% contraction in exports in dollar terms.

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