Thailand economy maintains growth momentum

Trade and domestic demand data suggest the economy maintained growth momentum in April to May, says DBS.

DBS Group Research noted:

The Bank of Thailand meets on policy today and is expected to leave rates unchanged at 3.00%. However, recent central bank comments have turned somewhat more dovish. This is not surprising given the deterioration in the global outlook and the policymaker will likely highlight the willingness and ability / room to loosen policy if and when the need arises.

Trade and domestic demand data suggest the economy maintained growth momentum in Apr-May. But we suspect customs exports data for June, out sometime this week, could fall sharply and raise concerns about sustainability of growth ahead. Production is up by 25% (QoQ, saar) in 2Q-to date while real private consumption, investment and export volumes are up by 9%, 40% and 25% respectively.

As such, both demand-side and supply-side data point to a strong second quarter, with prospect for double-digit sequential growth (QoQ, saar), following first quarter’s 45% surge. Being the last month of the quarter, June data will affect the following quarter’s growth more than that of 2Q for technical reasons.

Obviously, a sharp contraction in June and in the second half can throw the economy into reverse gear. This is the risk ahead. In particular, heightened risk of a break-up in Eurozone and disappointment over slowing growth in the US can easily lead to a freeze in business spending and usher in a deep recession.

Risks also emanate from China’s slowdown, which could just easily turn into a hard-landing, if global economic growth topples, and sends asset prices in the country southwards.

But the fact is these are risk factors for the moment, not the base case scenario – not for DBS and not for the Bank of Thailand. It is unlikely that the BoT cuts rates in view of risk factors alone. It would rather indicate a willingness to ease policy if and when the need arises.