Investment in Thailand

Thailand - Investment

Economy posts robust growth in Q2

Thailand’s economy expanded a healthy 3.7% year-on-year in Q2—the fastest acceleration in over four years—supported by an expansion in government spending as well as impressive export growth. The Q2 reading follows a 3.3% expansion in Q1 and overshot market expectations of a 3.2% increase.

Domestically, lackluster private consumption was offset by increased government spending, which expanded 2.7% year-on-year (Q1: +0.3% year-on-year) on the back of the government’s financial stimulus plan to boost economic growth and attract private investment. Political uncertainty has weighed on private investment in previous quarters, however private investment finally experienced a rebound in Q2, expanding by 3.2% over the same quarter last year (Q1: -1.1% yoy). Public investment, on the other hand, decreased significantly and dragged on gross fixed investment, which expanded a slim 0.4% yoy in Q2. Household expenditure decelerated slightly from 3.2% in Q1 to 3.0% in Q2, despite higher agricultural output and robust growth in tourism.

On the external side of the economy, exports of goods and services accelerated from a 2.7% expansion in Q1 to a significant 6.0% increase in annual terms, which marked the fastest pace of expansion since the fourth quarter of 2012. The result was aided by a robust expansion in the agricultural sector amid favorable weather conditions and increased activity in key trading partner economies. The increase in exports represented a major portion of the higher-than-expected growth recorded in Q2. Imports also increased in Q2, albeit it at a more modest pace of expansion (Q2: +8.2% yoy; Q1: +6.1% yoy), thus strengthening the overall net contribution of the external sector to GDP growth.

Going forward, Thailand’s economy is expected to continue to grow steadily on the back of a flourishing external sector, the government fiscal stimulus and accommodative monetary policy. However, risks to growth remain, the biggest of which is political uncertainty at home while private consumption remains sluggish and is weighed down by high household debt. Weaker investment growth also poses a risk to growth. Meanwhile, a slowdown in the Chinese economy, protectionary policies abroad and the strong baht could dent the external sector.

The FocusEconomics panel forecasts that the economy will grow 3.4% in 2017, which is unchanged from last month’s estimate. For 2018, the panel projects that the economy will expand 3.4%.