Thailand: Economy shrinks at fastest pace since the 1998 Asia financial crisis
February 20, 2012
In the fourth quarter, GDP plummeted 9.0% over the same period the previous year, which contrasted the revised 3.7% expansion observed in the third quarter (previously reported: +3.5% year-on-year). The reading overshot market expectations of a 5.0% decline, the Central Bank's estimate of a 5.2% contraction, and the government's projection, which had GDP falling 3.7%. The fourth quarter result represents the sharpest decline recorded since the third quarter of 1998. The worst floods in over 50 years, which inundated two-thirds of the country, have taken their toll on the economy, denting both domestic demand and exports. Total consumption fell 3.1% in the fourth quarter (Q3: +2.8% yoy), dragged down by falls in both private and government spending. Moreover, gross fixed investment fell by 3.6% in the fourth quarter (Q3: +3.3% yoy), while destocking of inventories shaved 0.1 percentage points off of overall economic growth. The external sector also deteriorated sharply over the previous quarter, as exports of goods and services plummeted 6.5%, which contrasted the 17.3% expansion recorded in the third quarter. Meanwhile, imports grew 2.9%, well below the 20.1% increase observed in the previous period. Consequently, the external sector's net contribution to overall economic growth swung from plus 0.9 percentage points in the third quarter to minus 6.1 percentage points in the fourth. A quarter-on-quarter comparison shows an even steeper deterioration in economic activity, with GDP plunging a seasonally adjusted 10.71%, contrasting the 0.85% increase observed in the previous period. Following this devastating fourth quarter result, the economy grew only 0.1% in the full year 2011, a fraction of the 7.8% expansion recorded in 2010. The annual reading undershot both the government's and the Central Bank's projections of 1.5% and 1.0% growth, respectively. According to the Central Bank, economic activity will return to pre-flooding levels in the third quarter of 2012, and predicts that the economy will expand 4.9% this year, before accelerating to 5.6% in 2013.
Author: Ricardo Aceves, Senior Economist