Thailand: Economic growth picks up steam in the final quarter of 2018
The Thai economy shifted into a higher gear in the fourth quarter of last year. Economic growth accelerated 3.7%, up from a slightly downwardly revised 3.2% expansion in the third quarter (previously reported: +3.3% year-on-year) and surpassing market expectations. Moreover, the economy expanded 0.8% in Q4 over the previous quarter in seasonally-adjusted terms, rebounding from a 0.3% contraction in Q3.
The reading was mainly powered by the domestic economy, as the external sector continued to drag on growth. On an annual basis, domestic demand firmed up on stronger private consumption and fixed investment growth and larger inventories. Private consumption grew 5.3% in the fourth quarter, up slightly from the 5.2% expansion in the previous quarter, supported by a weak inflationary environment and robust growth in personal loans by commercial banks. Moreover, a recovery in agricultural prices, increasing employment and dropping unemployment all buttressed income growth in both the agricultural and non-agriculture sectors. In addition to solid growth in non-durables and semi-durables expenditure, consumers also continued spending money on durable goods such as automobiles at a robust pace. Fixed investment grew 4.2% over the same period a year ago in Q4, up from the 3.9% increase recorded in the previous quarter. The acceleration in fixed investment growth came solely on the tails of private investment, as public investment contracted. While private construction growth remained robust on residential buildings investment, private-sector investment expenditure on machinery and equipment picked up pace. In contrast, government consumption growth slowed from 1.9% to 1.4% in the same period, on the heels of a marked drop in social transfers.
On the external front, exports of goods and services rebounded from a 0.9% contraction in the third quarter to a 0.6% increase in the final quarter. This was singlehandedly due to a recovery in merchandise exports, as services exports fell for the second consecutive quarter. Merchandise exports were carried by manufacturing goods and agro-industrial products exports; however, some industrial goods and computer-related exports fell due to the impacts of the trade war between the U.S. and China on demand and the supply chain. Growth in goods and services moderated to 5.6% in the fourth quarter, down from a strong 11.0% increase in the previous quarter. This was mainly due to a strong drop in gold imports. Nonetheless, net exports continued to drag on the economy, albeit at a softer pace than in the third quarter.
In 2018 as a whole, the economy expanded 4.1% over the prior year (2017: +4.0% yoy) and, looking ahead, the economy is expected to continue growing at a robust pace this year. However, with risks to the outlook tilted to the downside, the pace of expansion is expected to ease. Of chief importace are ongoing global trade tensions, especially between the U.S. and China which could intensify again after the current truce ends in early March. In addition, Thailand is scheduled to hold elections on 24 March after countless postponements; this has elevated political risk at home, which could dent consumer and business sentiment as well as investment activity.