Thai economic growth slips to 5-year low, rate cuts likely

[BANGKOK] Thailand's economy grew at its weakest pace in five years in 2019 as exports and public investments slowed, adding pressure on the central bank to cut rates to shield Southeast Asia's second-largest economy from the coronavirus epidemic.

The trade-dependent economy has been buffeted by the Sino-US trade war, soft domestic demand and a delayed fiscal budget and drought, but tourism stood out as a bright spot.

Many analysts now expect the Bank of Thailand to further slash rates at record lows to bolster growth this year.

Gross domestic product expanded 1.6% in the October-December quarter from a year earlier, versus 2.1 per cent forecast in a Reuters poll and the third quarter's upwardly revised 2.6 per cent growth.

In 2019, the economy grew 2.4 per cent, the slowest rate since 2014. It was in line with analysts' forecast, but was sharply down from upwardly revised 4.2 per cent growth the previous year.

"The Q4 data was disappointing as the trade war weighed on exports and investments whilst the lagged effect of the government formation and budget bill approval sapped fiscal expansion," said Kobsidthi Silpachai, head of capital markets research at Kasikornbank.

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On a quarterly basis, the economy grew 0.2 per cent in the October-December quarter, the National Economic and Social Development Council (NESDC) said, in line with upwardly revised 0.2 per cent growth in July-September.

Thai stocks were flat and the baht eased slightly to 31.21 per dollar in afternoon trade.

The state planning agency on Monday cut its forecasts for 2020 economic growth to 1.5 per cent-2.5 per cent from 2.7 per cent-3.7 per cent. It also lowered its outlook for exports, the main growth driver, to a 1.4 per cent rise from a 2.3 per cent increase projected in November.

First-quarter GDP may contract from the previous three months before recovering in the second quarter as tourism should recover, Wichayayuth Boonchit, the NESDC's deputy secretary general, told a news conference.

"Q1 may contract but Q2 will improve, so it won't be a technical recession," he added.

The Bank of Thailand (BOT) said the economy might expand less than 2 per cent this year. Earlier this month, it cut the policy rate to a record low of 1.0 per cent, and Governor Veerathai Santiprabhob said there was room to help growth if needed.

Don Nakornthab, a senior BOT director, said 2019 GDP and the NESDC's growth outlook were less than the BOT's forecasts of 2.5 per cent and 2.8 per cent, respectively. However, the recent rate cut took into account a much weaker-than-expected growth outlook for 2020.

The BOT will closely monitor the outbreak, which is expected to hit the first quarter hard, but the situation will gradually improve after that, Don said, adding that economic growth should be more than 3% in 2021, barring further negative factors.

Separately, the finance ministry said it would closely monitor the situation and was ready to introduce additional measures to help the economy.

"We maintain our 2020 GDP growth forecast at 1.9 per cent, reflecting our view that the slowdown will extend into 2020," said Charnon Boonnuch, economist of Nomura in Singapore.

He expects the BOT to cut the key rate by another quarter point, likely in the second quarter.

Capital Economics also said further cuts were likely soon.

The BOT will next review monetary policy and provide updated economic forecasts on March 25.

Thailand's growth has lagged regional peers for years with private consumption constrained by high household debt.

In October-December, exports dropped 4.9 per cent year-on-year and public investment fell 5.1 per cent while tourism growth slowed to 6.4 per cent.

This year, the NESDC expects foreign tourist numbers to fall to 37 million from last year's record 39.8 million, due to the virus outbreak.

REUTERS