Thailand’s domestic demand slowed in January, economic recovery continues to be gradual

The Bank of Thailand's January economic report indicates that the country's domestic demand slowed again after showing signs of moderate recovery in the second half of 2015. Domestic activity has slowed at the margin, in spite of a solid growth in the tourism sector in January. Incomes in the agricultural sector continue to be weak on a rolling basis, in spite of certain improvement in harvesting cycle in December.

A severe El Niño and drought-like conditions are expected to continue to suppress rural demand in the first half of 2016, weighing on overall growth. In recent months, government expenditure has been a solid help, and is likely to continue in 2016.

With this data, the economic rebound of Thailand continues to be slow in nature. In January, private consumption fell, declining 1.6% m/m in seasonally adjusted terms, as tax exemptions on durable goods phased out.

On a monthly basis, private investment remained flat, with a drop in capital goods imports offsetting a rise in machinery sales. However, the rebound in manufacturing activity also reversed as the sector shrank 4.8% m/m in seasonally adjusted basis in January. The tourism sector in the month started off with positive data, with arrivals increasing 10.6% m/m in seasonally adjusted terms. The external position of Thailand continues to be strong, with current account surplus reaching USD 4.1billion in January.

The Bank of Thailand is likely to keep monetary conditions accommodative against the backdrop of growth reversal. There are rising risks of additional easing of monetary policy. The central bank, in its recent monetary policy statement, had signalled the requirement to preserve policy space. However, of the domestic demand continues to weaken in February and March, the risks to additional easing will begin to rise. The Bank of Thailand is expected to maintain rates through 2016, with a bias for a weaker exchange rate.