The government has slashed its economic growth forecast for this year further in light of slowing exports, weakening domestic demand and possible delays in implementation of its water and infrastructure development plans.
The government's planning unit, the National Economic and Social Development Board (NESDB), yesterday cut its forecast for full-year gross domestic product (GDP) growth to a range of 3.8-4.3%, from 4.2-5.2% made in May.
The agency also lowered its export growth estimate to 5% from 7.6%, reflecting demand weakness abroad.
Thai exports in the first half of the year grew only 1.2% compared with the same period last year.
Thai gross GDP unexpectedly shrank 0.3% in the three months through June from the previous quarter, when it contracted by 1.7%, showing the economy has slipped into a mild recession.
A technical recession is typically defined as two consecutive quarters of contraction in GDP.
"Thailand has entered a technical recession, according to the definition," Kampon Adireksombat, senior economist at Tisco Securities, said.
It was the first recession since the sub-prime financial crisis when the country's economy contracted 5% quarter-on-quarter in the fourth quarter of 2008 and 2.5% in the first quarter of 2009. However, this round of recession was far milder than at that time, he said.
Mr Kampon said the global economic recovery could boost Thailand's exports and the country's growth in the second half of the year. Tisco has cut its 2013 economic growth forecast to 4.0% from 4.5% projected previously.
According to the NESDB, the economy grew by 2.8% in the second quarter from the same period last year after expanding 5.4% in the previous quarter.
This was a result of slowdowns in both agricultural and non-agricultural sectors. The agricultural sector expanded by 0.1%, as the unresolved early mortality syndrome disease in shrimp led to a 7.9% decline in fisheries, while the non-agricultural sector grew by 3.0%, decelerating from the previous quarter.
The manufacturing sector slowed by 1.0% as external demand has not recovered while domestic demand has decelerated.
For domestic expenditure, household consumption and investment grew at a slower 2.4% and 4.5% respectively.
"The economy in the second half of the year still has a chance to grow over the first half if we can speed up budget disbursements and try to boost exports," NESDB secretary-general Arkhom Termpittayapaisith said, also citing the quickening of the global economic recovery. "Growth of 4.3% for 2013 is possible if budget disbursements can be accelerated and exports rebound."
Economic growth in the second half will rely more on private investment and tourism, as growth in exports and household spending remains limited. Still, those factors are sensitive to the political situation, making this a key risk for economic growth, he said.
While delayed public spending and last year's high base following the slowdown after the 2011 floods are a challenge, lower inflationary pressure allows monetary policy to be accommodative, Mr Arkhom said.
Inflation slowed for a seventh straight month in July on the back of an erosion of consumer purchasing power, prompting worries over clearer signs of a faltering economy. Inflation based on 450 consumer items rose by 2% year-on-year in July, slowing from 2.25% in June, 2.3% in May and 2.4% in April as well as from 3.6% last December, when the rate was at its highest since November 2011.
The planning agency also yesterday cut its forecast for the inflation rate to a range of 2.3-2.8% at the end of this year against its previous projection of 2.3-3.3%.
Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong said it is essential to accelerate investment involving megaprojects to boost economic growth. The economy would continue to expand this year albeit at a slower pace, he said, adding that year-on-year GDP growth in the first half of this year, at 4.1%, was higher than the 2.6% growth posted in the same period a year ago.
"Economic growth will not be impressive as long as large-scale investment projects continue to move at a snail's pace," he said.
The 2-trillion-baht borrowing bill to finance infrastructure development will return for House deliberation soon.