Thai economic growth shrinks in Q1 2020, unlikely to avoid economic contraction in 2020

Thai economic growth contracted in the first quarter, but it beat consensus expectations, helped by a build-up in inventories. On a year-on-year basis, the Thai economy contracted 1.8 percent, as compared with fourth quarter’s growth of 1.6 percent and market expectations of a contraction of 3.9 percent. On quarter-on-quarter basis, growth shrank 2.2 percent, as compared with previous’ quarter’s growth of 0.2 percent and market expectations of a contraction of 4.2 percent.

Private consumption growth eased to 3 percent year-on-year in the first quarter from 4.1 percent seen in the prior quarter. The breakdown indicates a start distinction between discretionary and non-discretionary spending. Spending on restaurants was 22.6 percent lower than one year ago. Public consumption shrank further to 2.7 percent in the first quarter in the midst of delays in the disbursement of budget funds.

Investment shrank 6.5 percent year-on-year, leading to a 1.5 percentage point drag on overall growth. Nevertheless, this was more than countered by a build-up inventories that is likely to have been involuntary, noted ANZ in a research report. Stripping inventories, domestic demand eased 0.4 percent year-on-year in the first quarter.

Exports shrank at a more rapid pace than imports. Net exports led to a 3.1 percentage point drag to overall growth in the quarter.

“Looking ahead, growth will likely deteriorate further in Q2, accounting for the bulk of the lockdown measures, before stabilizing in H2. A sharp deterioration in the April PMI and consumer and business sentiment at all-time lows are indicative. Both fiscal and monetary policy stimulus have been deployed to aid growth”, stated ANZ.

Bank of Thailand is expected to further cut interest rate by 25 basis points later this week.

“Even so, Thailand is unlikely to avoid an economic contraction this year. The National Economic and Social Development Council expects between a 5 and 6 percent contraction in 2020”, added ANZ.