Thailand: Economic growth inches up in Q3 but remains lackluster
The economy grew 2.4% year-on-year in the third quarter, up slightly from the 2.3% expansion recorded in the prior quarter but below market expectations nonetheless. The print reflected ongoing troubles in the external sector as the Sino-American trade war drags on, while a strong baht has dented the tourism sector. On a quarter-on-quarter, seasonally-adjusted basis, economic growth slowed to 0.1% in the third quarter, after expanding a revised 0.4% in the second quarter (previously reported: +0.6% quarter-on-quarter).
Domestic demand contracted in annual terms; however, this was primarily due to unstocking, as private and public consumption remained robust, despite easing slightly. Household expenditure grew 4.2% year-on-year (Q2: +4.6% year-on-year) on the back of cheap credit conditions, as well as negligible inflationary pressures, amid weak core inflation and a strong baht. Government consumption accelerated to 1.8% in Q3 (Q2: +1.1% yoy), driven by greater compensation of employees. Fixed investment also gained speed (Q3: +2.8% yoy; Q2: +1.9% yoy) as private fixed investment growth was solid, while public fixed investment more than doubled due to stronger construction activity on infrastructure.
On the external front, exports contracted for the third consecutive quarter, albeit at a softer pace. In the three months ending in September, exports of goods and services fell 1.0% year-on-year, much less steeply than the 7.9% contraction logged in the second quarter. Meanwhile, imports also fell for the third quarter running and at an accelerated pace (Q3: -6.8% yoy; Q2: -2.6% yoy). Due to the stronger fall in imports, the external sector consequently contributed positively to growth.
Next year, economic growth should accelerate on a rebound in the external sector, while domestic demand is seen moderating somewhat. The key downside risks to the outlook are therefore external and stem from the U.S.-China trade spat, as well as a slowdown in the Chinese economy. The economic outlook also partly depends on the trajectory of fiscal and monetary policy, with the delay in passing the budget for FY2020—amid strong opposition to fiscal stimulus and the current administration—clouding the fiscal outlook. Meanwhile, FocusEconomics Consensus Forecast panelists currently do not expect the Bank of Thailand to loosen its stance next year.
Prakash Sakpal, Asia economist at ING, noted that they “think the Bank of Thailand will use firmer growth as an argument for leaving policy on hold in the rest of 2019 and throughout 2020.” On the other hand, the research team at Nomura added that they “see rising risks of the BOT cutting the policy rate again in 2020 due to disappointing GDP growth outlook”.