The business environment in the third quarter is expected to improve at a gradual pace, supported by private consumption and tourism, says the Bank of Thailand.
But private investment is likely to remain unchanged as businesses apply a wait-and-see strategy and maintain sufficient capacity to fulfil domestic and foreign demand, the central bank said in its latest Business Outlook Report.
Private consumption is expected to continue expanding on improved consumer sentiment and income as the widespread drought subsides, with state stimulus policies fuelling consumption, the report said.
The tourism sector should continue to expand and remain an important growth driver.
The Business Outlook Report is compiled using information from the Business Liaison Programme, which polled 190 companies nationwide between April and June. It, therefore, did not take into account the series of bomb blasts and arson attacks in seven southern provinces on Aug 12.
Merchandise exports, meanwhile, should continue to decline as trading partners' economies remain fragile, while Brexit has added uncertainties, the report said.
The real estate sector is expected to decelerate as the government's property stimulus measures ended in April.
"Going forward, businesses will continue to closely monitor economic recovery as risks remain, specifically the weak recovery of economic activities of agricultural households and manufacturing workers due to existing high household debt and reduced working hours as a result of the subdued export sector," the report said.
Recent pockets of upside surprises in economic growth data and positive bottom-up evidence from corporates have raised questions among investors about whether Thailand will see further upward momentum in growth for the rest of this year, said Santitarn Sathirathai, the Singapore-based head of economic research for Southeast Asia and India at Credit Suisse.
"While we think there has been a genuine if partial recovery in private consumption, exports and private investment data reaffirm our concerns that these two drivers will remain weak," he said.
The Commerce Ministry recently reported that exports fell by 0.1% year-on-year in June to US$18.1 billion after sliding by 4.4% in May and 8% in April. For the first six months, shipments shrank by 1.6% year-on-year to $105 billion.
The Private Investment Index rose by 1.3% on year between April and June, up from the 1.2% recorded in the first three months, according to central bank statistics.
Separately, demand for consumer loans is expected to soften in the third quarter, especially housing and auto leasing loans, partly due to low consumer confidence, said the central bank's latest Senior Loan Officer Survey.
But some financial institutions are expected to ease credit standards for car loans, attributed mainly to improved loan quality, said the report, noting that credit standards for other consumer loans are expected to remain unchanged.
For loans associated with small and medium-sized enterprises (SMEs), financial institutions are expected to tighten their lending standards further, owing mainly to concerns over economic vulnerability and the overall SME loan quality.
The central bank received feedback from 27 banks and 23 non-bank financial institutions, which altogether covered 99.2% of total credit in the financial system.