Gross domestic product (GDP) in the second quarter of the year expanded by 4.2 per cent, after expanding a revised 0.4 per cent in the previous quarter, National Economic and Social Development Board (NESDB) secretary general Arkom Termpitayapaisit said on Monday.

Mr Arkom attributed the substantial growth in the second quarter to a full recovery of the production sector after being hard hit by the great flood late last year that resulted exports expansion, the increase in number of foreign tourists, private investment and household spending.

This had boosted the GDP growth in the first half of the year to grow by 2.2 per cent, he said.

However, the NESDB had slightly lowered its growth projection for this year to between 5.5 per cent and 6.0 per cent, from the previous forecast of 5.5 to 6.5 per cent because the export sector is being affected by the impact of the prolonged eurozone debt crisis, he said.

National Economic and Social Development Board secretary-general Arkom Termpitayapaisit (Photo by Chanat Katanyu)

“Economic uncertainty, especially from the euro region, remains a key risk in the second half,” Arkhom Termpittayapaisith, secretary-general of the National Economic and Social Development Board, said at a media briefing. “We need to accelerate budget spending to boost the local economy.”

Exports fell 4.2 per cent in June from a year earlier, the fourth decline in six months, even as the local unit of Toyota Motor Corp had record local sales this year after supply constraints eased and the government offered as much as 100,000 baht ($3,172) in tax savings for first-time buyers.

The NESDB official said meeting the government's full-year export growth target of 15 per cent will be difficult, after shipments contracted by 2.1 per cent in the first half.

"To reach the target, we need to ship $25 billion per month, which is a very high level," Mr Arkom said.

Phatra Securities managing director Supavud Saicheua said before the data release that domestic consumption and investment are pillars of the Thai economy amid a very bleak external demand outlook. 

"My biggest concern will be next year. The end of some stimulus policies may slow down domestic consumption, while the economic crisis in Europe will continue to hurt export," Mr Supavud said.

"The stronger data is unlikely to alter the call for easing by the Bank of Thailand, although the timing might be delayed," said Wee-Khoon Chong, a fixed-income strategist at Societe Generale SA in Hong Kong. "Export data has already shown weakness."

The Bank of Thailand kept its policy rate at three per cent for a fourth meeting last month, and cut its expansion forecast for the year to 5.7 percent from six per cent. It reduced its export growth estimate to seven per cent from 8.3 per cent and said inflation will be 2.9 per cent from an earlier prediction of 3.3 per cent.

There is room to adjust monetary policy to support economic growth if needed, and the central bank is ready to do more, it said at the time. 

Finance Minister Kittiratt Na-Ranong, also a deputy premier, said earlier this month he would like to see the baht weaken slightly to help exporters and the benchmark rate should be 2.5 per cent as inflation is now manageable.

The government has also raised minimum wages and pledged to spend more than two trillion baht on infrastructure and water-management projects over the next seven years to boost growth and prevent a repeat of the flood disaster, which killed more than 700 people and cost the economy 1.4 trillion baht.

The Thai economy, the biggest in Southeast Asia after Indonesia, grew 3.3 per cent last quarter from three months earlier, compared with a revised 10.8 per cent increase in the previous period. The median forecast in a Bloomberg News survey was for a two per cent gain quarter on quarter.