Thailand’s economy continued its deceleration in the second quarter as increased public spending and tourism failed to offset weak domestic demand and exports, with the future growth imperilled by China's devaluation of the yuan.
Gross domestic product grew 2.8% year-on year in the April-June period, down from the 3% pace set in the first quarter. Sequential GDP growth was up 0.4% from the previous quarter, the National Economic and Social Development Board said Monday. At the same time, the NESDB cut its 2015 GDP projection to between 2.7% and 3.2% from a previous forecast of 3-4%.
It predicts exports will contract 3.5% from an earlier estimate of a 0.2% gain. Government spending will rise 11.6% in the second half, the agency said.
The revisions were due to sluggish global economic growth of 3.1-3.4% and China's economic woes, said NESDB secretary-general Akhom Termpittayapaisith.
- NESDB's full report: Economic performance in Q2 and outlook for 2015
"The yuan devaluation is not good news for Thailand, as it will put more pressure on our exports," Pimonwan Mahujchariyawong, a Bangkok-based economist at Kasikorn Research Co, told Blomberg News before the report. "Government spending and tourism are the only two engines that can drive growth. But the outlook is dimmer now with the yuan move."
For the first half of the year, Thailand's economy grew 2.9%, Mr Arkhom said.
Second-quarter growth was driven by public spending and investment by both the government and state enterprises. Tourism spurred the economy and partially offset export contraction.
Positive factors in the second half will continue to be government spending and investment, as well as the weaker baht, which will help exports. The office predicted the baht would move in a range between 33.50 and 34.50 to the dollar.
"The government will continue to accelerate budget disbursement and investment," Mr Arkhom told a press briefing. "We are determined to push forward spending to help support the local economy while global economic conditions aren't good."
The booming tourism sector will also help boost the economy, with the latest projection of 30 million visitors, up from 29 million. Chinese will continue to dominate the Thai tourism market in 2015.
Meanwhile, Mr Arkhom said the country had to monitor risk factors such as the struggling global economy, currency fluctuations and sluggish global farm prices.
Manufacturing fell 0.7% in the second quarter from a year earlier, today's data showed. Private consumption grew 1.5%, compared with 2.4% in the previous period.
"With the growth outlook fragile, rising downside risk to growth could elicit further monetary easing," said Weiwen Ng, a Singapore-based economist at Australia & New Zealand Banking Group Ltd. "Still, monetary easing alone via the interest-rate channel seems insufficient to deal with this, and we look for the BoT to lean on allowing baht weakness."
