Thailand growth weakest since 2014 as trade war bites

Thailand’s economy grew at the slowest pace in almost five years in the second quarter as exports and tourism were buffeted by U.S.-China trade tensions and a strong local currency.

Gross domestic product rose 2.3% from a year ago, down from 2.8% in the first quarter, the National Economic and Social Development Council said Monday. That’s the slowest pace since the third quarter of 2014. The expansion matched the median estimate of 2.3% in a Bloomberg survey of economists.

A slowdown both domestically and abroad affected the quarterly growth, Thosaporn Sirisumphand, the council’s secretary general, said at a briefing in Bangkok. The U.S.-China trade war, global jitters and a drought all remain as risks going forward, although a government stimulus package announced last week could help offset the damage, he said.

Thailand’s trade-reliant economy has been hit by slumping exports, a surging currency and cooling tourist arrivals, with a looming delay in the budget since a new government took office last month posing a further risk. The central bank unexpectedly cut its benchmark interest rate earlier this month for the first time in more than four years, and said it sees more room to ease ahead.

The economic council cut its full-year growth forecast to 2.7%-3.2% – down from an earlier estimate of 3.3%-3.8% – as the second-quarter pace should be the slowest this year, the council’s deputy secretary-general, Wichayayuth Boonchit, told reporters. The forecast for exports was cut to a 1.2% contraction, from previous estimates of 2.2% growth.

After the release of yesterday’s data, Bank of Thailand Governor Veerathai Santiprabhob said the monetary authority will likely cut its 2019 economic growth forecast at the September policy meeting. The central bank currently estimates 3.3% expansion for 2019.

The sustained decline in export gains has spilled over to domestic demand, Nomura Singapore Ltd. economists Euben Paracuelles and Charnon Boonnuch wrote in a research note Monday. They maintained their expectation for full-year GDP growth of 3.0%, but added that “the balance of risks to our forecast remains tilted to the downside.”

Gareth Leather, senior Asia economist at Capital Economics, said the expansion could slow to 2.5% this year.

“With weak global demand and a downturn in the tourism sector likely to drag on growth prospects over the coming quarters, we expect the economy to remain weak,” he wrote in a research note.

GDP rose a seasonally adjusted 0.6% in the second quarter compared with the previous three months, the council said, below the 0.7% median estimate in a Bloomberg survey.

In addition to the trade war, exports have been hit by gains of nearly 8% in the baht over the last 12 months, making it Asia’s best performing currency tracked by Bloomberg. The central bank has taken a series of measures to curb short-term inflows and intervened in the currency market to curb the baht’s strength, leading to a record-high level of foreign exchange reserves.

The cabinet is scheduled to meet today to discuss the government’s 316 billion baht ($10.2 billion) stimulus proposal announced last week. Thosaporn said that additional stimulus is also possible, including steps that focus on boosting private investment and tourism.

The government also will likely boost investment through public spending and disbursements by state enterprises, he said. Thailand also could benefit from investment from companies looking to relocate away from China amid the trade war, he said. Suttinee Yuvejwattana & Siraphob Thanthong-Knight, Bloomberg