Thailand's economy expands on post-flood recovery

Thailand's economy expanded in the first quarter as factories resumed production and domestic consumption revived after last year's floods.

Gross domestic product increased 0.3 percent in the three months through March from a year earlier, after contracting a revised 8.9 percent in the previous quarter, the National Economic and Social Development Board said in Bangkok on Monday.

Bank of Thailand Governor Prasarn Trairatvorakul said this month the monetary authority will refrain from further rate cuts because the pace of recovery is exceeding its expectations, even as Europe's debt woes and higher oil prices pose risks to growth. Manufacturers are boosting output after the country's worst floods in almost 70 years shut plants and disrupted production, with Honda Motor Co saying March 31 its factory in Ayutthaya province will run at full capacity to meet rising demand.

"The post-flood rebound is progressing nicely, with a stronger-than-expected rebound likely to keep Bank of Thailand focused on future inflation risk," said Sacha Tihanyi, a senior currency strategist in Hong Kong at Scotiabank, a unit of Bank of Nova Scotia. "We are going to see recovery ramp up. However, it's not going to be at such a massive rate of growth."

Exit stimulus

The central bank left borrowing costs unchanged for a second meeting on May 2 and later raised its growth forecast for 2012 to 6 percent. The International Monetary Fund said this month that Thailand should be ready to raise interest rates and exit fiscal stimulus when the economic recovery strengthens.

Asian nations face risks stemming from Greece's inability to form a new government after an inconclusive election that could deepen Europe's debt crisis, adding to challenges from a China growth slowdown and an uneven US recovery.

Weak European demand is particularly troubling for countries including Singapore and Thailand, where exports make up the equivalent of half or more of gross domestic product.

Capacity utilization and exports will pick up in the second quarter as more companies recover after the floods, Arkhom Termpittayapaisith, secretary-general of the National Economic & Social Development Board, said at a media briefing in Bangkok.

"Auto and electronics sector will return to full capacity and that will boost growth in the second quarter," he said. "Growth may be 4 percent to 5 percent and will pick up speed in the third and fourth quarter," he said, adding that the agency is maintaining its growth forecast for this year at 5.5 percent to 6.5 percent.

'Still mild'

The recovery is "still mild", he said, adding that the central bank must ensure monetary policy "remains supportive" to the economy, by either cutting or holding interest rates.

Thai Finance Minister Kittiratt Na-Ranong said last week the country could achieve 15 percent exports growth this year. Car production rose 11 percent to a record 190,935 units in March from a year earlier, with sales jumping 19.3 percent, the Federation of Thai Industries said last month.

Bloomberg News in Bangkok and Hong Kong

(China Daily 05/22/2012 page17)