Is Thailand's economy gaining steam?
Economy expanded by 0.3% in 1Q12, but the manufacturing sector is still in the red.
Different sectors such as agriculture and the services industry saw a boost, growing by 2.8% and 3.3% respectively.
The private sector remain key to the sharp bounce in 1Q GDP. Both private consumption and investment rebounded sharply by 2% and 5.2% yoy. However, government consumption remained lackluster, declining by 1.6% yoy.
Here's more from the research by OSK-DMG Group Economics:
The Thai economy rebounded strongly in 1Q of 2012 to expand by 0.3% after contracting by a revised 8.9% in 4Q 2011 following the floods that devastated factories and rice fields in the kingdom. This was much better than the market and expectations of -0.9% yoy. On seasonally-adjusted quarter-on-quarter basis, real GDP jumped 11.0% in 1Q after contracting by 10.8% in 4Q 2011.
There was no quick recovery in manufacturing, which contracted by 4.2% yoy in 1Q, though this was an improvement from the 21.6% drop in 4Q. There are signs though that the manufacturing sector is picking up steam with the capacity utilization rate showing a marked improvement in 1Q at 63% vs. 46.3% in the prior quarter.
The agriculture sector also strengthened, expanding 2.8% yoy from 1.6% in 4Q. Staging a recovery was the services sector, which grew by 3.3% yoy in 1Q after declining by 1.6% in the previous quarter. With the exception of real estate and social services, the rest of the services sector saw mostly stronger growth in 1Q. This was particularly true for the tourism-related segments, like hotels & restaurants.
On the expenditure side, the private sector was key to the sharp bounce in 1Q GDP. Both private consumption and investment rebounded sharply by 2% and 5.2% yoy from -3.0% and - 3.6% in 4Q. Government consumption remained lackluster, declining 1.6% yoy in the quarter following a contraction of 4.1% in the previous quarter. Exports continued to contract but at a slower pace in 1Q by 3.2% yoy on the back of weak demand from major export markets like the EU and Japan.
It is to be reiterated that rebuilding efforts and government support would spur investment and consumption spending in 2012, though exports should remain a drag on growth. But strong domestic demand, which has recovered faster than expected, should be able to more than offset this downside in exports. Given the v-shaped recovery in 1Q, expect economic growth to be stronger for the full-year.
The full-year growth forecast is revised to 6% for 2012 from 5.2% previously. This compares with the NESDB’s growth projection of 5.5-6.5% and the Bank of Thailand’s recently upwardly revised 6% forecast for 2012. Inflation may remain elevated this year at 4% though there could be further upside if oil prices escalate. Despite the potential for inflation to rise beyond the 3.5% forecasted by BoT, it is unlikely that policy will be either hiked or cut this year as the central bank tries to balance the need to support growth and the risks to inflation. The policy rate is therefore likely to remain at 3.0% for the rest of 2012.