Thai Recession Eases, Reducing Need for Lower Rates

By Suttinee Yuvejwattana and Anuchit Nguyen

Aug. 24 (Bloomberg) -- Thailand’s recession eased last quarter on government spending and improving export orders, reducing the need for the central bank to cut interest rates.

Gross domestic product fell 4.9 percent in the second quarter from a year earlier, after contracting 7.1 percent in the previous three months, the government said today. The median estimate of 12 economists in a Bloomberg survey was for a 5.1 percent decline.

“Economic growth will be much stronger in the second half as all indicators have shown impressive improvement,” said Voravan Taraphum, managing director of BBL Asset Management Co., which oversees about 170 billion baht ($5 billion) of assets. “The export slump has eased as several manufacturers have boosted their production.”

Policy makers worldwide have pledged about $2 trillion in stimulus and slashed borrowing costs to counter the global recession, helping stabilize orders at companies including Thailand’s Aapico Hitech Pcl. Thailand may keep its key interest rate unchanged at 1.25 percent for a third meeting on Aug. 26 as the need to cut wanes, according to a Bloomberg survey.

Thailand’s benchmark SET Index gained 1.9 percent to 656.78 at 11.57 a.m. in Bangkok. The baht was little changed at 34.03 against the dollar.

Thai consumer confidence has improved since May as Prime Minister Abhisit Vejjajiva withstands protests against his rule.

Government Spending

The Cabinet on Aug. 18 approved a revised 1.06 trillion- baht, three-year investment program to help lift the economy out of its recession. The plan is in addition to a 116.7 billion- baht stimulus package implemented in the first half of 2009.

“The Thai economy is recovering faster than previously expected,” said Montree Sornpaisarn, chief executive officer at Kim Eng Securities (Thailand) Pcl, the nation’s biggest stockbroker. “The political tension has also eased after a big mess during late last year and April,” enabling the government to push forward its economic policies and spending plans.

The economy grew 2.3 percent in the second quarter from the previous three months, the government said. That matched the median estimate of economists surveyed by Bloomberg and a revised 1.8 percent decline in the first quarter.

Thailand’s export decline eased in July and industrial production in June fell the least since November. Asian nations from Taiwan to Malaysia have also reported smaller declines in overseas sales as the world recovers from its worst recession since the Great Depression.

Manufacturing Falls

Manufacturing declined 8.4 percent last quarter, compared with a revised 14.4 percent drop in the previous three months. Private consumption fell 2.3 percent, while government spending rose 5.9 percent. Total investment dropped 10.1 percent.

“We were in a mess in the first quarter, but I am feeling more positive now,” Yeap Swee Chuan, chief executive officer of Aapico, a Thai auto-parts maker whose main clients include Toyota Motor Corp. and Honda Motor Co., told analysts last week. “The trend is good. We started to get more orders since May.”

The $261 billion economy may shrink in a range of 3 percent to 3.5 percent this year before growing as much as 3 percent in 2010, the economic agency said today. The Bank of Thailand expects GDP to decline as much as 4.5 percent in 2009.

Southeast Asia’s second-largest economy may shrink at the “low end” of the government’s forecast this year, declining about 3 percent to 3.1 percent, Ampon Kittiampon, secretary- general at the National Economic and Social Development Board, said in Bangkok today. The estimate assumes there’s no further political unrest, he said, predicting economic contraction will ease in the third quarter and GDP will resume growth in the last three months of the year.

‘Good Signs’

“There are many good signs,” he said, citing rising export orders, imports of machinery and raw materials, and lower than expected unemployment. “We can’t be complacent. There are many risk factors. The government needs to accelerate spending to support the economic momentum.”

Abhisit said last week the nation needs to be careful to prevent any disruption to the “V-shaped” recovery the government expects, saying people aren’t yet confident the country’s political situation is “in good shape.”

Anti-government protests left two people dead in April and prompted Thai authorities to impose an emergency decree for 13 days in Bangkok.

Power in Thailand has shifted between parties allied to former Prime Minister Thaksin Shinawatra and his opponents since the 2006 coup that ousted him. Protesters against Abhisit say the prime minister’s rule is illegitimate because he came to office after a court dissolved the previous ruling party.

“The path to economic recovery remains challenging in light of unresolved political conflicts,” Usara Wilaipich, a Bangkok- based economist at Standard Chartered Plc.

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