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Thai Economy Contracts In Q4 Amid Floods; Govt. Ups 2012 Forecast

Thai Economy Contracts In Q4 Amid Floods; Govt. Ups 2012 Forecast

Thailand's economy contracted more than expected in the fourth quarter as widespread floods during the period severely affected industrial production and investment. However, the government expects a faster-than-estimated economic recovery this year due to a revival in domestic demand and production.

The National Economic and Social Development Board (NESDB) said Monday that the economy contracted 9 percent year-on-year in the fourth quarter, after growing a revised 3.7 percent in the third quarter. Economists had expected a 5 percent decline.

The agency said that severe floods significantly damaged industrial production, consumption, investment, export and tourism sectors while agriculture production slightly expanded.

Gross domestic product contracted a seasonally adjusted 10.7 percent compared to the previous quarter, in contrast to a revised 0.8 percent growth in the previous three months. In 2011, the economy expanded just 0.1 percent after a 7.8 percent surge in output in 2010.

The agency said that in the fourth quarter, industrial sector contracted 21.8 percent annually, compared to an expansion of 3.1 percent in the previous quarter. Private consumption expenditure decreased 3 percent.

Private investment declined 1.3 percent from last year, following 9.1 percent expansion in the previous quarter. Exports contracted 5.2 percent compared to 27.3 percent growth in the previous quarter due to floods and economic slowdown of major trading partners, especially the U.S. and EU.

However, agricultural sector expanded by 0.7 percent in the fourth quarter of 2011 following an increase in production of major crops. Nevertheless, farm income declined 0.2 percent due to floods.

The agency expects the GDP to grow 5.5-6.5 percent in 2012, mainly due to expansion in domestic demand and recovery of industrial production. However, this was lower than its earlier forecast of 4.5-5.5 percent growth.

Production sector is expected to recover at a faster pace than previously expected, resulting in a continuous increase in private investment. The expansion of external demand is expected to be sound following the strong expansion of the Asian economy.

NESDB forecast headline inflation to remain in a range of 3.5-4 percent in 2012, while private consumption is expected to expand 4.4 percent. Investment is expected to rise 14.2 percent this year, while exports are seen growing 17.2 percent.

Earlier this month, the Bank of Thailand raised its GDP forecast for this year to 4.9 percent. In January, the central bank cut the key policy rate for a second consecutive time to minimize the impact of floods on the economy.

by RTT Staff Writer

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