Thailand: Economy improves strongly in Q1
May 21, 2012
The economy is showing signs of recovery, after the worst natural disaster in over 50 years wracked the country in 2011. In the first quarter, GDP expanded 0.3% over the same period last year, which represented a notable improvement compared to the revised 8.9% contraction recorded in the previous quarter (previously reported: -9.0% year-on-year). The fourth quarter drop had represented the sharpest decline since the 1998 Asia financial crisis. In addition, the first quarter reading defied market expectations of a 0.9% decline. The improvement in the first quarter was primarily underpinned by strong growth in domestic demand, as the external sector remained subdued. Total consumption expanded 2.0% in Q1 (Q4 2011: -3.0% yoy), bolstered by strong growth in private consumption (Q4 2011: -2.8% yoy; Q1 2012: +2.7% yoy). Moreover, gross fixed investment grew 5.2% (Q4 2011: -3.6% yoy), on the back of strong growth in machinery and equipment investment. Moreover, a restocking of inventories contributed with 3.0 percentage points to overall economic growth. On the other hand, the external sector remained mired in the doldrums, as exports of goods and services dropped 3.2%, which, nonetheless, represented an improvement over the 6.4% contraction recorded in the fourth quarter. Meanwhile, imports accelerated from a 3.3% increase in the fourth quarter to a 4.5% expansion in the first. Consequently, the external sector's net contribution to overall economic growth remained negative but improved somewhat from minus 6.2 percentage points in the fourth quarter to minus 4.8 percentage points in the first. A quarter-on-quarter comparison confirms the rebound in economic growth, with GDP soaring a seasonally adjusted 11.0%, which contrasted the 10.8% drop observed in the previous period. According to the Central Bank, economic activity will return to pre-flooding levels in the second quarter, earlier than previously anticipated. Accordingly, the Bank revised its growth projections and now expects the economy to expand 6.0% this year, up from its previous 5.7% estimate. For 2013, the Bank predicts economic growth of 5.8%.
Author: Ricardo Aceves, Senior Economist