Thai Economy, 2H11: Accelerating on Private Consumption (Business Brief No.3149)

The latest economic data for June 2011 reflects continuing growth momentum in many sectors, especially the automobile industry that began to recover after component supply disruption problems began to diminish around the end of May 2011:  The manufacturing sector and private consumption both showed positive signs. Industrial production resumed growth of 3.3 percent YoY after four consecutive months of contraction, supported by recoveries in the production of automobiles, hard disk drives and beer. Private consumption grew at a decelerated pace to 3.5 percent YoY and investments advanced at a slower rate to 7.4 percent YoY, due to a high base from 2010. An indicator on car sales began to improve in June, against a contraction in May.  The rebound in export value over the previous month helped widen our trade surplus. The value of Thai exports climbed to USD20.816 billion, whereas imports declined to USD18.930 billion, translating into a trade surplus of USD1,885.5 million, compared to only USD274.3 million recorded in May. If that amount is added to the services account that reverted into a surplus of USD613.2 million in June, this pushed Thailand’s current account back into a surplus for the first time in three months, with a net gain of USD2,498.7 million, after logging a deficit for two consecutive months as a result of huge repatriations of investment profits during that period. Summary: Outlook for Thai economy in 2011 Although Thailand’s economic activity during 2Q11 was under immense pressure due to rising inflation and production costs, plus a shortage of components for the automobile industry, a quick recovery in Japan’s manufacturing output and increased spending prior to the general elections held recently helped moderate the economic slowdown in 2Q11. As a result, KResearch expects that the Thai economy in 2Q11 will probably have grown in a range of 0.5-0.9 percent (QoQ, s.a.) As for the economy in 2H11, KResearch is of the view that if political tension does not escalate again after the new government is sworn into office and several of their policies, e.g., a wage increase and new rice brokerage system, are implemented by the end of this year, this may help ease the high cost of living on the public. In addition, efforts to bolster industrial output during 2H11 may help offset the impact of an expected slowdown in the global economy on Thai exports somewhat. These drivers and a low base from 2H10 leads KResearch to forecast that the Thai economy in 2H11 will grow at a rate of perhaps 4.0-5.6 percent YoY. As a result, the 2011 Thai economy will grow about 3.5-4.5 percent, with a 4-percent base case expected to prevail.