Downside risks persist though Q2 growth trumps estimates

The National Economic and Social Development Board (NESDB) yesterday attributed the robust quarterly performance to strong domestic consumption and investment after last year’s flood disaster.
Barclays Capital Research said this was above the consensus of 3.1 per cent and its forecast of 3.6 per cent. 

HSBC Global Research said Asean growth continued to surprise to the upside, first with Indonesia, then Malaysia and now Thailand, which reported stronger growth than even the most optimistic forecast.
“As was the case with Indonesia and Malaysia, domestic demand was a significant driver of growth, helping to more than offset the drag from net exports,” it said.
The NESDB lowered its 2012 growth projection for gross domestic product from 5.5-6.5 per cent, set in May, to 5.5-6 per cent, chiefly on the slower-than-expected recovery in manufacturing and the intensifying euro crisis. This follows the Bank of Thailand’s recent revision from 6 per cent to 5.7 per cent.
Akhom Termpittayapaisit, secretary-general of the NESDB, said manufacturing could not resume normal production in the first half as expected, while the euro crisis could dampen demand for Thai exports. The think-tank slashed its export-growth forecast by half from 15.1 per cent to 7.3 per cent.
Its data showed that GDP last quarter was up 4.2 per cent over the same quarter last year, thanks to post-flood reconstruction, despite low export demand and falling agricultural prices.
It expects the slow recovery in the global economy to pose a great external risk to the Thai economy. To ensure that domestic consumption can support growth in the second half, the government should speed up recovery of flood-hit manufacturing, accelerate government budget disbursement, further ease monetary policies, and assist small and medium-sized enterprises affected by higher wages, Akhom said.
While maintaining its economic-growth forecast at 5.5 per cent, Barclays Capital noted that this prediction was biased to the downside, “especially in the case of weaker-than-expected growth in the global economy”.
HSBC Global Research said: “Export numbers, in particular, will carry significant weight, as both the central bank and government are acutely concerned over developments in Europe ... In this context, this week’s July customs trade data [due today or tomorrow] will be key. Neither HSBC nor the market is looking for a sharp downturn particularly, but with China’s July trade numbers having disappointed, there are downside risks.”
It expects the Kingdom’s July trade deficit to widen to US$976 million (Bt30.76 billion) from $524 million in June as exports decline 2.3 per cent year on year. The consensus is looking for a smaller trade deficit of $56 million, as exports fall 3.5 per cent and imports rise 10.8 per cent.
In its outlook report, the NESDB devoted three pages to detailing developments since the Euro Area Summit on June 29 and the European Finance Ministers meeting on July 9.
The rescue measures were deemed as having “marked significant progress in solving a short-term economic contraction, employing a stimulus package and relaxing fiscal austerity ... The measures would also address the liquidity tension(s).
“If those measures are implemented as expected, then the euro zone should recover in the second half, bringing the contraction for the full year to 0.2-0.5 per cent.”
HSBC is expecting a 0.6-per-cent contraction in the euro-zone economy.
Greek Foreign Minister Dimitris Avramopoulos met with his German counterpart Guido Westerwelle yesterday at the start of a new high-stakes round of financial diplomacy that could help determine the future of the 17 countries that use the euro. The meeting was ahead of a meeting in Berlin on Friday between the leaders of Greece and Germany, Prime Minister Antonis Samaras and Chancellor Angela Merkel.
The euro zone is awaiting a report next month on Greece’s progress in implementing reforms and austerity measures demanded in exchange for two massive bail-out packages. The report is being compiled by the so-called troika – representatives of the European Union, the European Central Bank and the International Monetary Fund.
With the dim outlook, the NESDB expects inflation this year to ease to 2.9-3.4 per cent, from 3.8 per cent last year. Against expectations that Thailand would run a current-account deficit this year, it forecasts a surplus of 0.1 per cent of GDP compared with the 3.4-per-cent surplus last year.
Both Barclays Capital and HSBC believe that with low inflation, the Bank of Thailand, which will convene on the policy rate again on September 5, will maintain the key interest rate at the current level.
“For now, our base case is for rates to remain unchanged for the rest of 2012,” Barclays Capital said. “If high-frequency indicators deteriorate further in the third quarter, we believe the BOT has the room and the willingness to provide more monetary support. This stance is supported by increasingly low inflation expectations.”