Thailand: Despite slowdown in the final quarter, the economy grew at fastest clip in 2017 in five years
The momentum in the Thai economy slowed somewhat in the final quarter of 2017. GDP expanded a solid 4.0% annually, slightly below the prior quarter’s reading of 4.3% year-on-year and below market expectations of 4.4% growth. The result was chiefly supported by robust manufacturing activity and a buoyant external sector. The fourth quarter rounded off a strong year for the economy, which registered a full-year growth rate of 3.9%, the quickest pace of expansion since 2012. Growth in 2017 was primarily supported by the non-agricultural sector.
Household expenditure grew 3.5% year-on-year in the fourth quarter, coming in a notch higher than the third quarter’s 3.4% annual growth rate. This points to a recovery in private consumption through the second half of 2017, following a slowdown in the first half of the year. Private consumption benefited from low inflation levels and growth in incomes throughout the quarter. Both government consumption and fixed investment growth, however, slowed markedly in the final three months of the year. Government consumption grew a meager 0.2%, coming in notably below the previous quarter’s 1.8% annual growth rate. Fixed capital formation growth also decreased significantly, from 1.2% year-on-year in Q3 to 0.3% year-on-year in Q4. The third consecutive quarterly drop in public fixed investment drove the significant slowdown.
Growth of both exports and imports accelerated year-on-year in the final quarter from the prior one, and the trade balance surplus widened. Exports of goods and services increased a strong 7.4% in annual terms (Q3: +6.9% year-on-year), owing to robust foreign demand for agricultural and manufacturing products, as well as an energetic tourism sector. Imports of goods and services expanded 7.5% on an annual basis over the previous quarter’s 6.5% annual growth rate. Solid demand for consumer goods and raw materials, which was in part thanks to demand from export-orientated industries, supported the steady growth.
Looking ahead, the Thai economy is expected to maintain a healthy trajectory this year and next. Growth this year is expected to come on the back of a robust external sector and solid domestic demand, as government expenditure is likely to pick up ahead of the elections scheduled for November. Growth in the external sector is, however, seen moderating this year due to a large base effect, as 2017 was a stellar year in which the external sector recovered from five meager years. However, high household indebtedness could drag on growth prospects. A strong baht and rising protectionism could cloud the external sector’s outlook.