Thai Economic Growth Slows More Than Expected to 5.3%

By Suttinee Yuvejwattana and Shanthy Nambiar

Aug. 25 (Bloomberg) -- Thailand's economic growth slowed more than expected in the second quarter, increasing the likelihood the central bank will soon stop raising interest rates.

Southeast Asia's second-biggest economy expanded 5.3 percent in the three months ended June 30 from a year earlier after a revised 6.1 percent gain in the first quarter, the government said today in Bangkok. Growth was forecast to be 5.8 percent, according to the median estimate of 10 economists surveyed by Bloomberg.

The economy slowed for the first time in more than a year as higher exports of rice and rubber failed to offset a decline in domestic spending. Growth may ease further in the second half as protests and court cases against Prime Minister Samak Sundaravej's six-month-old government erode consumer confidence.

``Investment has suffered, and given that political uncertainty is likely to linger, growth is likely to be depressed for quite some time,'' said Frederic Neumann, an economist at HSBC Global Markets in Hong Kong. ``One big risk for Thailand is that exports are likely to slow and in the face of weak domestic demand it is likely to lead to a sharp deceleration of economic growth.''

The Thai baht fell on speculation slower growth will damp overseas investors' demand for local assets. The currency slipped 0.6 percent to 34.11 per dollar as of 12:27 p.m. in Bangkok, according to data compiled by Bloomberg.

Rate Rises May End

Weaker growth means the Bank of Thailand may be on the verge of its last interest-rate increase this year, according to a Bloomberg survey. Governor Tarisa Watanagase is under pressure from the government to keep borrowing costs on hold to spur the economy. Bank of Thailand policy makers meet on Aug. 27.

Thailand's central bank will raise its one-day repurchase rate by a quarter of a percentage point to 3.75 percent, the second increase in two months, according to eight of 13 economists surveyed by Bloomberg. The rest expect borrowing costs to be left unchanged. Of the eight predicting an increase this week, four say it will be the last for this year and the others forecast at least a further quarter-point rise.

Lower fuel costs will start to slow inflation from October onwards, Finance Minister Surapong Suebwonglee said Aug. 15.

``Inflation should be at a controllable level,'' Ampon Kittiampon, secretary general of the government's National Economic and Social Development Board, said today. ``It shouldn't exceed 6.5 percent to 7 percent for the whole year due to the government's measures and softening oil prices.''

Government Criticism

The central bank last month raised its key rate by a quarter point to 3.5 percent, the first increase in two years, after inflation hit a decade-high 9.2 percent in July.

The move has been criticized by members of the government including Deputy Finance Minister Suchart Thadathamrongvej, who said this month that Governor Tarisa should resign if the central bank's policy differs from the government's pro-growth position.

The central bank and the finance ministry agree that Thailand's economic growth may ease in the second half as a global slowdown reduces demand for the nation's exports.

``Private investment and spending may not recover quickly given higher oil prices and inflation,'' Ampon from the National Economic and Social Development Board said today.

The board revised its full-year growth target to between 5.2 percent and 5.7 percent, from a range of 4.5 percent to 5.5 percent, because exports were stronger than expected in the first six months, Ampon said.

`Under Pressure'

Exports from Thailand, which account for about 70 percent of gross domestic product, rose 26.3 percent in the second quarter from a year earlier. That was faster than the 22.9 percent pace recorded in the previous three-month period.

``The overall growth momentum will come under pressure in the second half because of slowing external demand,'' said Song Seng-Wun, an economist at CIMB-GK Securities Ltd. in Singapore. `` Thailand will not be able to decouple from the rest of Asia and the world.''

Spending by local consumers and companies hasn't been that strong. An index of consumer confidence fell from April through June in line with surging oil costs, and protests and court cases against Samak's government.

``When you have political turbulence, one thing you will see is corporates holding back investment,'' said Nicholas Bibby, an economist at Barclays Bank Plc in Singapore.

Samak is under fire from protesters who say he is a stand-in for former premier Thaksin Shinawatra and want him to quit. Thousands of protesters marched to the British embassy in Bangkok on Aug. 19 to demand the extradition of Thaksin, who fled to the U.K. to avoid corruption charges.

Consumption, Investment Slow

Thailand's gross domestic product expanded a seasonally adjusted 0.7 percent in the second quarter from the previous three months, when it grew a revised 1.3 percent, according to today's statement.

Private consumption rose 2.4 percent from a year earlier in the quarter, after gaining 2.6 percent in the first quarter. Total investment in the second quarter rose 1.9 percent from a year earlier, slowing from 5.4 percent in the previous three months. Manufacturing expanded 8 percent, from a revised 9.9 percent pace in the previous three months.

Thailand's $245 billion economy may expand more than 5 percent in the second half of the year, said Ampon. The economy grew 5.7 percent in the first six months, he said. Economists in a Bloomberg survey expect growth of 5 percent this year and 5.2 percent in 2009.

To contact the reporter on this story: Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net; Shanthy Nambiar in Bangkok at snambiar1@bloomberg.net.