Thailand exports growth slips 4.5%

Consequentially, Bank of Thailand lowered its GDP growth forecast to 5.5-6%.

According to OCBC, the Q2 GDP data released earlier this month provided some surprises, among which was the fact that despite the stronger-than-expected performance in Q2, the BOT has adjusted its 2012 GDP growth lower, to 5.5-6.0% from 5.5-6.5% previously.

Here's more from OCBC:

As it is, the Q2 GDP data clearly showed that export growth has continued to weigh on the Thai economy in the period and without stronger support from external demand, we think it is unlikely to see investment growth sustaining at the current pace.

The latest manufacturing output and export growth data released this week suggest that the cautious leaning by the BOT is very much justified. Exports growth has continued to fall to -4.5% yoy in July, suggesting that the robust double-digit export growth in May was somewhat an anomaly.

Shipments to almost all the major destinations, including China, have slumped in July and may remain sluggish as long as we don’t see a stronger rebound in global growth. Should this sluggish export growth trend sustain, we expect investment growth to moderate quite markedly going forward. Despite the stronger-than-expected Q2 performance then, our 2012 growth forecast remains at 5.5% yoy, on the back of what we see as existing risks from the external sector.

All these do not necessarily mean that the BOT will proceed with a rate cut going forward. BOT Governor Prasarn’s recent rhetoric is interesting given the rather dovish leaning, especially ahead of the BOT rate meeting next week. While we concur with the view that risks are clearly tilted towards growth, particularly in line with the sustained moderation in export growth, at 5.5-6.0%, Thai growth potential remains higher than the initial target set by the authorities and remains decent relative to the region.

Our main view still takes into account the BOT keeping its rate steady until the year-end but we do see the risks of a 25bps rate cut should the central bank see the need for an insurance against further drag to external demand (note that in the last monetary policy meeting, 2 out of the 7 board members have voted for a rate cut).