Thailand: Economic activity moderates in Q2 from the previous quarter’s multi-year high
The pace of expansion in the Thai economy slowed somewhat in the second quarter, following the multi-year high increase in the previous quarter. In the second quarter, the economy still grew a robust 4.6% over the same period a year ago. The result is slightly below the previous quarter’s upwardly revised 4.9% year-on-year expansion (previously reported: +4.8% year-on-year), but marginally above market expectations of 4.5% growth. The moderation in the pace of growth was more significant on a quarter-on-quarter basis, however. The economy grew 1.0% over the previous quarter in the second quarter, which is markedly down from the revised 2.1% quarter-on-quarter expansion in the first quarter (previously reported: +2.0% quarter-on-quarter).
On an annual basis, the domestic economy was robust in the second quarter. Private consumption expanded 4.5% in the second quarter (Q1: +3.7% yoy) on the back of increased farm incomes amid a pick-up in output of key crops. Household expenditure was further supported by higher confidence levels amid muted inflationary pressures. Spending on durable goods was particularly robust, while expenditure on non-durable goods moderated. Fixed investment growth edged up to 3.6% in Q2 from 3.4% in the previous quarter, supported by an increase in private and public investment expenditure. Private investment growth came chiefly on the back of investments in machinery and equipment, as investment growth in construction moderated. Conversely, public construction investment rebounded from a contraction in Q1 while public machinery investment growth eased. Government consumption growth slowed from 1.9% in the first quarter to 1.4% in the second quarter, mainly due to a noteworthy drop in social transfers expenditure. In addition, the contribution to growth from inventories dimmed, dragging on the headline GDP figure.
On the external side of the economy, robust external demand for merchandise products spearheaded a pick-up in exports growth, although services exports slowed significantly. Total exports expanded 6.4% in Q2 over the same period a year ago, up from 6.0% in the previous quarter. Meanwhile, import growth eased due to a slowdown in goods’ imports. Total imports grew 7.5% in the second quarter, which is down from 8.7% in the first quarter, with the external sector dragging less on growth as a result (Q2: -0.3 percentage points, Q1: -1.0 percentage points).
Looking ahead, the economy is seen moderating in the remaining two quarters of the year, although growth as a whole in 2018 will likely accelerate from 2017. Healthy domestic demand led by strong public consumption and fixed investment should drive growth. However, the external sector’s performance is likely to continue moderating, due to a base effect and spillovers from increasing global trade tensions. This poses the main downside risk to the economic outlook, as the external sector remains of significant importance to Thailand’s economy. The risk to export competitiveness from the currency’s strength has subsided in the first half of the year, as the Thai baht has weakened 1.6% against the US dollar in year-to-date terms.