Here's why Thailand must be thankful for its domestic demand

It contributed this much to the country's 3%GDP growth.

According to Nomura, in line with expectations, GDP grew 3.0% y-o-y in Q3 from an upwardly revised 4.4% in Q2 (Consensus: 3.0%; Nomura: 2.8%).

Here's more from Nomura:

On a sequential basis, it grew 1.2% q-o-q sa in Q3 from a downwardly revised 2.8% in Q2. The strength in domestic demand remained encouraging, particularly investment spending, which rose 15.5% y-o-y in Q3 from 10.2% in Q2.

Within investment spending, public investment rose 13.2% y-o-y in Q3 from 4% in Q2 (contributing 0.7pp from 0.2pp in Q2) as the government continues to push ahead with reconstruction efforts and the upgrading of public infrastructure.

Public consumption rose 9.0% y-o-y (Q2: 7.4%) and contributed 1.1pp in line with the government‟s higher fiscal spending. Demand from the private sector was also buoyant, led by private consumption rising 6.0% y-o-y (Q2: 5.3%).

Overall domestic demand contributed 7.6pp to headline GDP, higher than 5.9pp in Q2. However, this was offset by negative contributions from inventories (-3.8pp from +2.8pp in Q2) and net exports (-1.1pp from -4.2pp in Q2).

All told, the breakdown of Q3 GDP continues to support our medium-term view that domestic demand strength in Thailand should offset weak external demand, keeping GDP growth above potential this year and in 2013.

We reiterate our full-year 2012 GDP growth forecast of 5.5%, because of favourable base-effects in Q4 and our view that the Chinese economy will rebound this quarter. For 2013, we forecast growth of 4.5% despite external uncertainty remaining high, driven by robust private consumption and investment spending.

From a policy perspective, although the Q3 GDP print disappointed the BOT‟s expectations of 3.3%, accommodative fiscal policy and the continued strength in domestic demand should provide sufficient justification for keeping the policy rate unchanged for the rest of this year and 2013 in our view.