Thai Economy Shrinks More Than Expected on Exports

By Daniel Ten Kate and Suttinee Yuvejwattana

Feb. 23 (Bloomberg) -- Thailand’s economy shrank more than expected in the fourth quarter as exports and tourism slumped, pushing the country closer to its first recession in a decade.

Southeast Asia’s second-biggest economy contracted 4.3 percent in the three months ended Dec. 31 from a year earlier, and may shrink by at least that much in the first quarter, the government said today.

Thailand may follow neighbors Singapore, Taiwan, Hong Kong and Japan into recession as demand dwindles for its agricultural products, automobiles and electronics. Prime Minister Abhisit Vejjajiva, facing protests after two months in power, has pledged immediate cash handouts and long-term infrastructure projects to stem the economy’s slide.

“Things are going to be looking pretty tough in the first quarter,” said Nicholas Bibby, an economist at Barclays Bank Plc in Singapore. “There will be no relief coming through from exports. With heightened political tensions, tourism receipts have been badly affected.”

Thailand’s SET Index of stocks fell 0.6 percent as of 11:49 a.m. in Bangkok. The measure has lost 3.9 percent this year. The baht currency rose 0.2 percent to 35.62 per dollar, trimming its loss since December to 2.7 percent.

Negative Outlook

The decline in gross domestic product was the largest since the fourth quarter of 1998. The median estimate of 17 economists surveyed by Bloomberg News was for a 2.8 percent drop in last year’s fourth quarter.

“The economy will face a very hard time in the first half of this year,” Abhisit said today in Bangkok. “I’m confident that the government’s spending will help the economy rebound in the second half.” GDP may shrink in the first six months of 2009 before picking up in the second half, he said last week.

“Growth will continue to be negative in the first half of this year and should turn more stable in the second half, but that totally depends on the global economy and how the government designs its fiscal stimulus,” said Isara Ordeedolchest, an economist at KTB Securities Ltd. in Bangkok.

GDP may shrink as much as 1 percent this year, the first annual contraction in 11 years, the government’s National Economic & Social Development Board said today. At best, the economy may not grow, after a 2.6 percent expansion in 2008, the agency said.

Interest Rates

“The economy will probably contract in the first half of this year,” Ampon Kittiampon, secretary-general of the board, said at a press conference in Bangkok today. “Government spending, economic stimulus measures and easing monetary policy should lead to a recovery in the second half of the year.”

Bank of Thailand Governor Tarisa Watanagase said Feb. 19 the central bank may need to revise down its forecast for zero- to-2 percent economic expansion in 2009. The median estimate in a Bloomberg survey of 15 economists is for growth of 0.3 percent this year.

The central bank has lowered its benchmark interest rate to 2 percent in cuts totaling 1.75 percentage points since the start of December and “has the room” to continue cutting borrowing costs when policy makers next meet on Feb. 25, Tarisa said in an interview on Feb. 12.

The bigger-than-expected GDP contraction and economic outlook may prompt Bank of Thailand policy makers to reduce the interest rate again at this week’s meeting, said Usara Wilaipich, an economist at Standard Chartered Bank Pcl.

Job Cuts

The largest contraction since 1982 in the U.S. economy, Thailand’s biggest single overseas market, has prompted exporters such as Delta Electronics (Thailand) Pcl and the local unit of Toyota Motor Corp. to predict lower sales and cut jobs. Overseas shipments, which amount to 70 percent of GDP, plunged 26.5 percent in January from a year earlier.

Thailand’s manufacturing industry may cut as many as 100,000 jobs this year as the economic slowdown hurts demand, the government said Feb. 20.

“The government should come up with more measures to help companies retain employees,” said Pongsak Assakul, vice chairman of the Thai Chamber of Commerce in Bangkok. “If you have a million workers walking around with no jobs, things are going to get worse.”

Trade was also disrupted late last year when demonstrators seeking to oust the previous government shut down Bangkok’s main international airport for eight days. The seizure, led in part by a member of Abhisit’s two-month-old cabinet, contributed to a 19.4 percent decline in tourist arrivals in the fourth quarter.

Manufacturing Drops

Private consumption rose 2.2 percent from a year earlier in the quarter, slowing from 2.7 percent. Total investment dropped 3.3 percent. Manufacturing shrank 6.8 percent, compared with 6.1 percent growth in the previous three months.

Supporters of the main opposition party, Puea Thai, plan to rally in Bangkok tomorrow to demand Abhisit prosecute those who blockaded the airport and call an early election. The protest is timed to coincide with an annual meeting of Southeast Asian leaders scheduled to take place in Hua Hin, a beach town about 200 kilometers south of the capital, later this week.

The government will start implementing a 116.7 billion-baht ($3.3 billion) package of training programs, cash handouts, property tax breaks and public works next month. It has also approved measures to boost bank lending and plans to spend 2 trillion baht on mainly infrastructure projects over three to four years to increase investment and create jobs.

Budget Deficit

The finance ministry forecasts a budget deficit of 349.5 billion baht in this fiscal year ending Sept. 30. The shortfall for the year starting Oct. 1 may widen by 12 percent as the global recession crimps revenue, Duangsmorn Warrarith, a deputy director of the Budget Bureau, said Feb. 17.

“The government doesn’t have much room to use such large amounts of money because they are facing this budget deficit,” said Pimonwan Mahujchariyawong, an economist at Kasikorn Research Co. in Bangkok. “We need the world economy to pick up.”

GDP contracted a seasonally adjusted 6.1 percent in the fourth quarter from the previous three months, when it grew a revised 3.9 percent, according to today’s statement. Economists surveyed by Bloomberg expected a 4.7 percent decline.

To contact the reporters on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.netSuttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net;