Thailand: Economic activity expands at fastest clip in five years in the first quarter of 2018
May 24, 2018
The Thai economy moved full steam ahead in the first quarter, registering the quickest pace of expansion in five years on the back of a pick-up in private consumption and robust foreign demand. Economic activity increased 4.8% over a year ago in the first quarter; the result was above the prior quarter’s solid 4.0% annual expansion. Moreover, the print also easily beat market expectations of a more moderate 4.0% year-on-year increase. On a quarter-on-quarter seasonally-adjusted basis, the economy grew 2.0%, also stepping up pace from the prior quarter (Q4: +0.5% quarter-on-quarter).
On an annual basis, the domestic economy did the heavy lifting in the quarter, as the external sector’s performance moderated somewhat. Household expenditure increased 3.6% in the first quarter, coming in above the prior quarter’s 3.4% increase. The slight increase in private consumption reflected growth in non-farming income and a recovery in farming income. Low inflationary pressures and higher consumer sentiment further buttressed private expenditure. Public consumption, meanwhile, shifted into a higher gear thanks to an expansion in the purchase of goods and services and an increased wage bill. Government expenditure grew 1.9%, significantly above the prior quarter’s meager growth rate of 0.2%. Finally, fixed investment rebounded strongly (Q1: +3.4% yoy: Q4: +0.3% yoy), on greater public and private investment. Public investment expanded for the first time following three consecutive quarterly contractions, chiefly reflecting increased investment in machinery and equipment.
On the external side of the economy, growth in exports and imports continued, although the pace of expansion in exports moderated from the prior quarter. In the first quarter, exports of goods and services increased 6.0%, down from the fourth quarter’s stronger 7.4% expansion, mainly reflecting a contraction in agricultural exports. Goods and services imports picked up pace, expanding 9.0% in the first quarter (Q4: +7.5% year-on-year)—in part owing to greater consumer and capital goods imports.
This year the economy is expected grow at a robust pace on the back of healthy domestic demand, buttressed by strong growth in public consumption and fixed investment. However, the reliance on the external sector poses a key risk to the economic panorama, amid increasing geopolitical and trade tensions. In addition, export growth should moderate this year because of a large base effect: The external sector recorded a stellar performance last year that will be hard to top. The strength of the baht will also be closely watched as it is a risk to export competitiveness.
Author: Jan Lammersen, Economist