Thailand’s GDP Contracts as Exports, Spending Slump

By Suttinee Yuvejwattana

May 25 (Bloomberg) -- Thailand’s economy shrank the most in a decade as exports and spending slumped, pushing the nation into its first recession since the Asian financial crisis.

Gross domestic product fell 7.1 percent last quarter from a year earlier, after declining a revised 4.2 percent in the previous three months, the government said today. The median estimate of 17 economists in a Bloomberg survey was for a 6.5 percent drop.

“The first quarter should be the worst,” said Rajeev Malik, a Singapore-based economist at Macquarie Group Ltd. “There is a strong likelihood the economy will grow in the fourth quarter.”

Exports, Thailand’s main economic driver, sank 16.4 percent last quarter, prompting companies including General Motors Corp. and Seagate Technology Inc. to cut production and fire workers. The central bank said last week there are signs the contraction is moderating, and the stock market is poised for its best quarterly advance since 2003.

“We can see light at the end of the tunnel,” Ampon Kittiampon, secretary-general at the National Economic and Social Development Board, said at a briefing on the economic report today. “We hope the government’s second stimulus package can jump-start the economy by the fourth quarter.”

The government “will do whatever we can” to ensure economic expansion by this year’s final quarter, Prime Minister Abhisit Vejjajiva said on May 20. The same day, the Bank of Thailand ended its most aggressive string of rate cuts ever, keeping borrowing costs at 1.25 percent even while saying risks to the economy remain.

‘Worst is Behind’

Production has picked up in electronic and automotive industries and exports, and consumer demand is recovering, Finance Minister Korn Chatikavanij said May 7.

“Orders have started to come back,” said Santi Vilassakdanont, chairman of the Federation of Thai Industries, a group of manufacturers. “The worst is behind us and things should get better now.”

Thailand’s economy will contract less each quarter before returning to growth in the final three months of this year, the median estimate of the economists surveyed by Bloomberg shows. The Bank of Japan on May 22 raised its view of the economy on signs that a record contraction in the first quarter represented the worst of the recession. Singapore and Taiwan last week said their economies may be past the worst.

Stocks, Baht

Exports have fallen for six months through April, the longest contraction in seven years.

Thailand’s benchmark SET Index declined 0.6 percent to close at 550.51, trimming its quarterly advance to 28 percent. The baht slipped 0.1 percent against the dollar.

“I don’t see any strong sign of recovery yet,” said Veeravat Kanchanadul, Senior Executive Vice President at Charoen Pokphand Group, Asia’s biggest animal-feed producer. “We can’t be sure about the state of the economy when small players are still struggling.”

Manufacturing declined 14.9 percent in the first quarter, compared with a revised 6.7 percent drop in the previous three months. Private consumption fell 2.6 percent. Total investment retreated 15.8 percent.

GDP may shrink as much as 3.5 percent this year, the government’s economic adviser, the NESDB, said today. That would be the first annual contraction in 11 years and matches the median estimate of economists surveyed by Bloomberg. The economy grew 2.6 percent last year.

Far From Good

Consumer confidence is at its lowest level in seven years. An emergency decree was imposed for 13 days in Bangkok last month to quell anti-government riots that left two people dead.

“Business was really bad after the riots,” said Doris Gerecht, general manager at Bangkok’s Montien Hotel, adding that occupancy has averaged about 50 percent so far this year compared with 75 percent a year ago. “We’re starting to see a bit of a pickup in corporate bookings, but things are still far from good.”

Thailand’s economy hasn’t shrunk for two straight quarters since the first three months of 1999. That was the last of eight quarterly contractions triggered two years earlier, when the nation cut a peg to the dollar that had overvalued the baht and slashed exports. The economic crisis eventually extended to the Philippines, Indonesia, Malaysia, Taiwan and South Korea.

Political Rifts

Premier Abhisit has pledged to call elections once stability is restored in the nation of 66 million people. The protesters say the prime minister’s rule is illegitimate because he came to office after a court dissolved the former ruling party.

Power in Thailand has shifted between parties allied to former Prime Minister Thaksin Shinawatra and his opponents since the 2006 coup that ousted him, hurting successive governments’ ability to implement spending plans.

Abhisit’s seven-party coalition is strong enough to pass a borrowing plan and next year’s 1.7 trillion-baht ($49 billion) budget, he said last week. That’s in addition to a 1.4 trillion- baht, four-year investment plan, and a 116.7 billion-baht stimulus package aimed at stemming this year’s economic slide.

GDP contracted a seasonally adjusted 1.9 percent in the first quarter from the previous three months, according to today’s statement. Economists surveyed by Bloomberg expected a 1.7 percent decline.

To contact the reporters on this story: Suttinee Yuvejwattana in Bangkok at Suttinee1@bloomberg.net