Thai economic indicators for March 2012 reflected a post-flood recovery as seen in production capacity that has continued to increase to 68.07 percent, beating what was seen before the floods. However, the higher production capacity was mainly boosted by an automotive industry recovery, while performance of other industries has not returned to normalcy yet. Due to the said factors, coupled with internal and external pressures, the Manufacturing Production Index (MPI) and exports for March thus contracted (-)3.17 percent YoY and (-)6.8 percent YoY, respectively.
Since domestic consumption and private sector confidence have been boosted by post-flood recovery activities and government economic stimuli, private consumption and investment grew 3.7 percent YoY and 9.0 percent YoY, respectively, in March. However, the cost of living and production-related expenses that have surged since the beginning of this year began to affect private sector spending, as seen in contracting consumption of (-)1.1 percent MoM, and slower investment of 4.2 percent MoM.
Due to economic boosts for the household and business sectors after flooding in 1Q12, private consumption rose 4.1 percent YoY, beating the growth of 1.2 percent YoY in 4Q11, while the private investment grew 9.0 percent YoY, beating the (-)3.7-percent contraction YoY in 4Q11.
The momentum of some consumption and investment indicators that began to soften at the end of 1Q12 reflects sensitivity toward a higher cost of living. Meanwhile, higher costs in production will add pressure to business sector performance. Moreover, the manufacturing sector may need time to bounce back, while competition with rivals will likely become tougher, particularly for farm produce. As a result, Thailand's overall production and exports during 1Q12 reported further contractions, against the growth of 7.1 percent YoY in production, and 4.0 percent YoY for exports of 1Q11. Nevertheless, this quarter's figures are better than the 4Q11 contraction of (-)34.2 percent and (-)5.2 percent growth, respectively, during massive flooding.
Although expanding domestic spending will help spur the Thai economy later on, it is possible that the Thai economic growth may be lower than the forecast. As a result, KResearch have reduced our GDP forecast for 1Q12 to 0.3 percent YoY, against our former forecast of 1.0 percent YoY.
However, KResearch views that a recovery of manufacturing output may be seen in upcoming months which may support manufacturing and export indicators to record growth in 2Q12, in line with other economic indicators. Nevertheless, inflationary pressure, living expenses, production costs, natural disasters, as well as the global economic direction should be monitored, as they may affect Thai economic momentum in 2H12. Regarding the Thai economy overall in 2012, we keep our forecast unchanged at 4.5-6.0 percent growth (with a mean of 5.0 percent).
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