Thailand: GDP records best result in a year in Q1
May 17, 2021
GDP contracted at a milder pace of 2.6% year-on-year in the first quarter, above the 4.2% contraction recorded in the fourth quarter of last year. Q1's reading marked the best result since Q1 2020 and came in above market expectations. On a seasonally-adjusted quarter-on-quarter basis, economic growth moderated to 0.2% in Q1 from 1.1% in the previous quarter.
The improvement in Q1 in annual terms was primarily driven by a surge in capital spending during the period: Fixed investment growth hit an over five-year high of 7.3% in the first quarter, contrasting the fourth quarter's 2.5% contraction. However, amid tighter movement restrictions in response to a spike in Covid-19 infections, private consumption fell 0.5% in the first quarter, which contrasted the fourth quarter's 0.9% expansion and thus weighed on total output in Q1. Meanwhile, government consumption growth inched down to 2.1% in Q1 (Q4 2020: +2.2% yoy), further limiting the improvement in the overall reading.
On the external front, exports of goods and services dropped at a more moderate rate of 10.5% year-on-year in the first quarter, which marked the best reading since Q1 2020 (Q4 2020: -21.5% yoy). In addition, imports of goods and services bounced back, growing 1.7% in Q1 (Q4 2020: -7.0% yoy). As such, the external sector detracted 8.0 percentage points from overall growth in Q1, improving from the 10.7 percentage-point subtraction in Q4 2020.
In its release, the Office of National Economic and Social Development Board downgraded its outlook for 2021, projecting the economy to expand between 1.5% and 2.5%—down 1.0 percentage point from its February forecasts—as the impact of a larger and likely more prolonged third wave of Covid-19 infections darkens the outlook considerably. However, continued public spending should help weather the headwinds, while the continuing improvement in external demand as vaccination campaigns gather pace in key international markets should bolster exports through the remainder of the year.
Regarding the outlook, Krystal Tan and Sanjay Mathur, economists at ANZ, commented:
“For our part, we are lowering our 2021 growth forecast to 2.2% from 3.0%. While Thailand’s economy had shown some signs of improvement in March, the onset of a third virus wave in April has stopped the nascent recovery in its tracks. The current wave is the biggest yet, with Thailand’s cumulative Covid-19 cases more than tripling since April. Worryingly, Bangkok—the capital city which contributes roughly one quarter of overall GDP—is at the epicentre.”
Author: Stephen Vogado, Economist