Thai Q2 GDP growth slows sharply amid weak global demand, gov’t cuts outlook

BANGKOK — Thailand’s economy grew at a much slower-than-expected pace in the second quarter (Q2), data showed on Monday, as weak exports and slower investment undercut strength in tourism and prompted the government to downgrade its 2023 growth forecast.

Southeast Asia’s second-largest economy has been hobbled by slackening global growth, led by its main trading partner China and falling investor confidence due to a protracted period without a government following elections in May.

Thailand’s gross domestic product (GDP) grew 1.8% in the April-June period from a year earlier, the National Economic and Social Development Council (NESDC) said, well below the 3.1% expansion expected by economists in a Reuters poll.

GDP had risen 2.6% year on year in the first quarter, revised down from 2.7% stated earlier.

The second quarter was hurt by export volumes falling 5.7% year on year and dragging manufacturing output down by 3.3%, while government spending also declined 4.3%. All of this put a further dampener on fixed asset investment, which was down 2.8% on-quarter.

The global demand weakness prompted the government to cut its 2023 GDP growth forecast to between 2.5% and 3.0% from a range of 2.7% to 3.7%, meaning the central bank may not rush to raise rates again.

“With inflation below target and the economic recovery showing signs of faltering already, we believe the Bank of Thailand is unlikely to deliver further rate hikes this year,” said Shivaan Tandon, emerging Asia economist at Capital Economics.

The Bank of Thailand has raised its benchmark interest rate seven times to 2.25% since last August to tame inflation and help foster a smooth economic recovery.

Central bank Governor Sethaput Suthiwartnarueput this month said the current level of the key rate was nearly balanced and could be held steady or hiked at the next meeting on Sept. 27.

Capital Economics said it is downgrading its annual 2023 GDP forecast sharply to 3.0% from 4.5% previously. Thailand posted full year growth of 2.6% last year.

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On a quarterly basis, GDP rose a seasonally adjusted 0.2% in the June quarter, also sharply under a forecast rise of 1.2%, and against 1.7% growth in the previous quarter, which was revised down from 1.9% stated earlier.

Adding to the headwinds, NESDC head Danucha Pichayanan warned that investor confidence will suffer further if problems arise in the transition to a new government.

“If there are drastic events in the transition, it will affect investor confidence,” he said, adding that budget disbursements have been slow and could dip in the short term.

Thailand has been under a caretaker government for five months and faces prolonged uncertainty after the winner of the May election, Move Forward, was blocked from forming a government by conservative legislators allied with the royalist military.

On Tuesday parliament will convene to vote for a new prime minister when the second-place Pheu Thai’s candidate, real estate tycoon Srettha Thavisin, will be nominated.

As weak global demand crimps exports, Thailand’s economy has been supported by its vital tourism sector and private consumption growth.

The agency maintained a forecast of 28 million foreign tourist arrivals this year, but expected tourism revenue to decline, Mr. Danucha said.

It projected exports to drop 1.8% in 2023 versus an earlier forecast for a 1.6% fall.

“Higher borrowing costs and weak global demand are likely to have limited appetite for capacity expansion among private firms,” Capital Economics’ Shivan Tandon said, but added that easing price pressures will help boost real incomes and consumption. — Reuters