Thailand’s GDP may plummet 15% in 4Q11

This week sees the release of third quarter GDP report and October trade and production data sometime this week. Both sets of data will be of great interest but the latter would be the first set of data to throw light on the extent of damage in the all important manufacturing sector from the floods.

Third quarter GDP growth is expected at 5.5% (QoQ, saar, which translates to 4.5% growth in on-year terms. Manufacturing production growth, and by extension GDP, ought to have been stronger in 3Q than the monthly production data indicate (3Q: 2% YoY) given the strength in export volumes (3Q: 20% YoY) and the weak first-half production (but was likely not).

Either inventory levels are higher than is apparent from the data or there are data quality issues in the export volume or production data, which explains the discrepancy between the two. Of course, manufacturing as in the GDP accounts could be stronger than the monthly data (and has been so for the last couple of quarters). Overall, however, manufacturing production appears to have lagged real exports and consumption and a major catch-up was ahead until the devastation from the floods threw the economy off-balance.

Trade data from the region (especially North Asia) point to a sharp pull back in exports in recent months (Aug-Oct). An outsized 8% MoM, drop in Thai exports is not out of place in light of export trends in North Asia that Thai exports tracks well. Such a sharp drop would translate to on-year growth of 9% YoY, down from growth of 25% year-to-date, similar to consensus expectations.

Import growth is expected to recede too but not as much and such could have pushed the trade balance to record a deficit in the month. Consensus expects a deficit of USD 0.5bn but a still larger deficit seems probable as some of domestic demand may have been met with imports in the months given the destruction to domestic production from the floods.

More broadly for the fourth quarter, the devastation from the floods point to a 15% QoQ contraction in GDP. This implies about 2.5% GDP growth in 2011, well below the trend rate of 4.5%.

Normally, production levels should return to pre-flood levels and even exceed that on rehabilitation and reconstruction spending. However, in view of the uncertainty from the European crisis, the extent of recovery in 2012 is extremely uncertain.