Thai economy beats forecasts with 2.9% growth in Q3

Thanks to government investments and exports.

The Thai economy in the thirdquarter posted better-than-expected growth of 2.9% year-on-year. According to analysts from Bank of America Merrill Lynch, growth was derived from net exports of goods and services and government investment. 

Although exports of goods fell 1.2% YoY in real terms, exports of services rose 17.5%, enabling overall exports of goods and services to rise 1.8%.

Public investment rose 17.5% YoY in Q3, but this is a deceleration from the 25.6% YoY growth achieved in the preceding quarter. For fiscal year 2015 as a whole, which ended on September 30, government investment spending was Bt271.6bn, only 65.3% of the investment budget and much lower than the 87% disbursement target.

Here's more from BofAML:

Private consumption expenditure was steady, rising 1.7% YoY in 3Q versus 1.6% growth in 2Q. However, government final consumption decelerated to grow 1% YoY (from 3.8% in 2Q). 3Q private investment however contracted 6.6% YoY in 3Q, much worse than being flat for 1H15. Thus despite a 17.5% rise in public investment, overall gross fixed capital formation contracted 1.2% YoY in 3Q, the first contraction in 18 months.

On the production side, agriculture continued to suffer, contracting 5.7% YoY in 3Q, the fifth consecutive quarter of contraction. The weakness was broad-based, affecting rice, maize, pineapple, palm oil and fisheries. Thailand will face a more severe drought in 1H 2016 so the plight of farmers is far from over. Manufacturing expanded 0.8% with rising production of vehicles, food and beverages and petroleum refinery.

Domestic services such as transport and communications, wholesale and retail trade and financial intermediation grew 4-7%. Hotels and restaurants rose an impressive 10.9% YoY and 18.7% respectively. We note that the statistical discrepancy between GDP measured on the expenditure side versus on the production side is unusually large at 6.8% in 3Q.

NESDB forecasts GDP growth of 3-4% in 2016 based on tangible improvements in private investment (from -1.3% in 2015 to +4.7% in 2016). Supported by government investment, total investment growth is projected to more than double from 4.6% in 2015 to 9.5% in 2016. Exports are expected to turn around from -5% in 2015 to +3% in 2016. Thailand is still projected to run a large current account surplus of 5.7% of GDP. Private and government consumption are forecasted to improve moderately.