Bloomberg News

Thailand GDP Growth Accelerates; Flooding Threatens Slump

November 30, 2011

(Updates with economist’s comment in fourth paragraph.)

Nov. 21 (Bloomberg) -- Thailand’s economic growth quickened for the first time in more than a year last quarter on exports, before the worst floods in almost 70 years raised the specter of a slump and prompted the government to cut its 2011 forecast.

Gross domestic product rose 3.5 percent in the three months through September from a year earlier, after climbing a revised 2.7 percent in the previous quarter, the National Economic and Social Development Board said in Bangkok today. The median of 11 estimates in a Bloomberg News survey was for a 4.5 percent gain.

The floods have killed more than 600 people, swamping thousands of factories and disrupting supplies for companies from Apple Inc. to Toyota Motor Corp. The damage may reach 400 billion baht ($13 billion), Barclays Plc said, and the Bank of Thailand has signaled room to cut interest rates to prop up growth as well as counter threats from Europe’s debt crisis.

“The economy faces a contraction this quarter,” Usara Wilaipich, an economist at Standard Chartered Plc in Bangkok, said before the release. “The risks to growth are imminent from the floods and a global slowdown. We expect the central bank to come up with a one-off rate cut of half a percentage point to shore up sliding confidence.”

The baht weakened 0.1 percent to 31.02 per dollar as of 9:38 a.m. local time. The currency is down about 3.9 percent in the past three months and the benchmark SET index of stocks has tumbled about 8 percent over the period as investors shun emerging-market assets.

Forecast Cut

Thailand’s GDP gained 0.5 percent in the third quarter from the previous three months. The median of seven estimates was for a 1.5 percent increase. A report earlier today showed Singapore’s economy expanded 6.1 percent from a year earlier, with the city-state’s trade ministry predicting growth of as little as 1 percent in 2012.

The development board cut its Thai growth forecast for 2011 to 1.5 percent, from 3.5 percent to 4 percent earlier. The economy is set to expand 4.5 percent to 5.5 percent in 2012, it said, boosted by post-flood reconstruction.

The Bank of Thailand has room to cut interest rates, Governor Prasarn Trairatvorakul said Nov. 18. While inflation held above 4 percent for the seventh straight month in October as floods damaged crops, the central bank forecasts consumer- price growth of 3.5 percent in 2012.

Borrowing Costs

The central bank left its one-day bond repurchase rate unchanged at 3.5 percent last month, after increasing it by a quarter-point for seven straight meetings. The next policy decision is due Nov. 30.

Expansion in Southeast Asian economies may have peaked last quarter, with authorities in Singapore and Indonesia cutting growth forecasts in recent weeks. Indonesia lowered interest rates to a record low this month and Malaysia left them unchanged to sustain domestic spending.

Third-quarter Thai expansion was aided by a stabilization in industrial production as trade interruptions caused by the March 11 earthquake and tsunami in Japan eased. Thailand makes about a quarter of the world’s hard-disk drives and serves as a production hub for Japanese carmakers and electronics firms.

The floods since July threaten to hurt the $319 billion economy’s attraction as a manufacturing base. Honda Motor Co. and Pioneer Corp. are among those to have scrapped profit forecasts after the deluge shut factories.

Prime Minister Yingluck Shinawatra, fighting to sustain investment from overseas as anger grows over the government’s response to the crisis, has proposed spending 130 billion baht on rebuilding and measures to prevent future inundations.

The cost of the damage may amount to about 4 percent of GDP, according to Rahul Bajoria, a Singapore-based regional economist at Barclays. He predicts the central bank will lower borrowing costs by half a percentage point this month.

--With assistance from Michael Munoz in Hong Kong. Editors: Sunil Jagtiani, Tony Jordan

%THB

To contact the reporter on this story: Suttinee Yuvejwattana in Bangkok at Suttinee1@bloomberg.net.

To contact the editor responsible for this story: Tony Jordan at tjordan3@bloomberg.net; Stephanie Phang at sphang@bloomberg.net


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