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25 Aug 2008

Thai Economy

2Q08 GDP Growing Lower at 5.3%, Slower Growth Likely Continues into 2H08 (Business Brief No.2268)

- The National Economic and Social Development Board (NESDB) has reported the Thai GDP growth in 2Q08 at 5.3 percent Y-o-Y, lower than the 6.1 percent growth achieved in 1Q08. Taking the seasonally adjusted Q-o-Q growth into consideration, it decelerated to 0.7 percent from the 1.3 percent Q-o-Q growth of 1Q08. The Y-o-Y growth was lower than both the KASIKORN RESEARCH CENTER (KResearch) forecast at 5.8 percent as well as the 5.7 percent median forecast estimated by most analysts. The major reason underlying this decelerating economic growth was lower domestic spending in all segments. In particular, investments into fixed assets decelerated more seriously than earlier forecast, growing at only 1.9 percent against the growth of 5.4 percent in 1Q08. At the same time, public spending continued to contract to 2.4 percent growth, from the contraction of 0.1 percent seen in 1Q08, while household spending has decelerated only slightly, growing 2.4 percent. The slowdown in domestic spending stemmed from accelerating inflation that rose from 5.0 percent in 1Q08 to 7.5 percent in 2Q08.
- Taking national production into consideration, it was found that despite favorable growth in the farm sector at 6.5 percent (from 3.5 percent in 1Q08), production in other sectors, including general industry, wholesale/retail trade and services all decelerated. The fishery and construction sectors contracted against the performance of the same period of last year (shrinking 3.0 percent and 3.9 percent, respectively). Notably, growing production in the farm sector was boosted by higher prices and greater demand for agricultural goods.
- However, the NESDB has raised their projection on Thailand's economic growth to 5.2-5.7 percent, raising it over an earlier forecast of 4.5-5.5 percent, as they have perceived that the economy in 2H08 may receive an additional boost from the government's economic stimulus measures and better than expected export prospects.
- KASIKORN RESEARCH CENTER (KResearch) views that since the economic figures of 2Q08 was lower than expected growth, the Y-o-Y performance in 2H08 will likely decelerate further due to the high base effect of last year coupled with an export slowdown in line with a sluggish world economy and weakening global commodity prices. It is expected that Thailand's 2H08 economic growth will be less than 5.0 percent. Nonetheless, given the 1H08 GDP expansion at 5.7 percent, KResearch expects that the overall 2008 growth will be in a range of 5.0-5.5 percent with a median value of 5.3 percent, rising over the growth of 4.8 percent in 2007. This estimate is derived from an assumption that the average cost of Brent crude oil will be around USD 114.0/bbl., and the average inflation rate for the whole year will be around 6.6 percent. Meanwhile, private consumption in 2008 will grow by 2.4-2.9 percent and investment will grow around 2.3-3.8 percent. Also, exports in US Dollars will grow by 17.0-20.0 percent and imports will be around 26.0-30.0 percent, which may trim the current account to USD 4.0-7.0 billion approximately.
- In 2H08, closer attention should be paid to the lower world economic growth, the foreign exchange rate trend and politics. However, there should be several positive factors seen in 2H08, such as a falling inflation rate in line with weakening oil prices. Also, the possibility of expedited budgetary disbursements and smoother passage of budgetary bills vis-à-vis FY2009, plus additional state economic stimulus measures that may be launched soon should help facilitate government expenditures in 4Q08. KResearch
Thai Economic Projection, 2008
Units: % Y-O-Y (Unless Otherwise Stated)
2007
2008
Average Cost of Brent Crude (USD)
72.5
114.0
US GDP growth
2.0
1.3
Average Cost of Diesel (in THB)
25.7
33.9
Headline Inflation
2.3
6.6
THAI GDP
4.8
5.0-5.5
Private Consumption
1.5
2.4-2.9
Investment
1.4
2.3-3.8
Government Expenditures (% GDP)
-1.5
-1.9
Exports
17.3
17.0-20.0
Imports
9.1
26.0-30.0
Current Account ( Billion USD)
15.8
4.0-7.0
Source: KResearch

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