Bloomberg News

Thai Economy Shrinks First Time in Two Years After Floods

February 19, 2012

(Updates with comment from economist in fourth paragraph.)

Feb. 20 (Bloomberg) -- Thailand’s economy contracted last quarter as the worst floods in almost 70 years disrupted output by manufacturers from Western Digital Corp. to Honda Motor Co., putting pressure on policy makers to revive growth.

Gross domestic product declined 9 percent in the three months through December from a year earlier, after climbing a revised 3.7 percent the previous quarter, the National Economic and Social Development Board said in Bangkok today. The median of 14 estimates in a Bloomberg News survey was for a 5 percent drop. The economy grew 0.1 percent in 2011.

Southeast Asia’s second-largest economy shrank for the first time since 2009 after floods that killed more than 700 people and inundated two-thirds of the country dented exports already hurt by weaker European demand. Prime Minister Yingluck Shinawatra has pledged to spend 350 billion baht ($11 billion) on infrastructure and the Bank of Thailand cut the benchmark interest rate for a second straight meeting in January.

“Thailand’s economy is on the road to recovery from the floods, but weak global demand is likely to limit the rebound in manufacturing and exports this year,” Sukhy Ubhi, an economist at Capital Economics Ltd. in London, said before the report. “Inflation worries will take a back seat in the first half of this year,” he said, adding there is a “strong chance” of another rate cut in 2012.

Inflation slowed for the second consecutive month in January. While consumer confidence has gained since November, political uncertainty and rising energy costs are undermining sentiment, and the economic recovery remains fragile, the University of the Thai Chamber of Commerce said Feb. 9.

Growth Risks

Thailand’s GDP fell 10.7 percent last quarter from three months earlier, compared with a revised 0.8 percent rise in the previous period, today’s report showed.

The central bank said earlier this month risks posed by the worsening global outlook and the impact of last year’s floods were greater than the threat of inflation. The central bank will start distributing low-interest loans in early March to individuals and small- and medium-sized companies affected by the flooding.

The country’s manufacturing index fell for the fourth consecutive month and exports dropped for a second month in December after floods disrupted production, prompting manufacturers including Honda, Toshiba Corp. and Fujitsu Ltd. to cut their profit forecasts last month. Zurich Financial Services AG said last week its fourth-quarter profit fell 46 percent after losses from the floods and other natural disasters.

The Ministry of Commerce has targeted a 15 percent increase in exports this year, compared with a 17.2 percent gain in 2011. Overseas sales may rise 0.6 percent in January from a year earlier, compared with a 2 percent contraction the previous month, according to a Bloomberg News survey. The data is due this week.

“Exports will continue to improve as plants resume production,” said Kampon Adireksombat, an economist at Tisco Securities Co. “Still, we need to accept the truth that the growth this year can’t be as high as two years ago because of faltering global demand.”

--With assistance from Michael Munoz in Hong Kong and Tony Jordan in Bangkok. Editors: Rina Chandran, Stephanie Phang

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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