Exports help lift Q2 growth to 4.4% but consumption and investment still weak

Economic growth was a surprisingly strong 4.4% in the second quarter, thanks to high exports and government spending, according to the National Economic and Social Development Board.

Growth rose from 4.2% year-on-year in the first quarter, outpacing the 4.1% to 4.2% estimates forecast by most private economists. But private consumption and investment remained weak in the second quarter, leading the NESDB to cut its estimates for both categories for the full year.

First-half economic growth stood at 4.3%. The NESDB maintained unchanged its growth estimate for the year at 4% to 4.5%, with a base target of 4.3%. Economic growth in 2006 was 5.1%. Agricultural production rose sharply in the second quarter to 9.7% year-on-year, compared with 3.3% the previous quarter. But non-agricultural activity slowed to 4% in the second quarter, down from 4.3% in the first. Household consumption also rose by an anaemic 0.9%, continuing a downturn that started in the second quarter of 2006.

But government spending rose 7.4% in the quarter, thanks in part to a 3.8% increase in salaries for the civil service. Ampon Kitti-ampon, the secretary-general of the NESDB, said the overall macroeconomy remained stable in the second quarter, with inflation at a low 1.9%, unemployment at 1.6% and the current account posting a surplus of $1.32 billion. Mr Ampon said economic growth was on track to reach 4% to 4.5% for the full year, as export growth and fiscal spending were expected to continue to rise in the second half.

The general elections in December should also benefit consumer and business confidence in the second half. Exports rose 18% in the second quarter, with trade surplus at $1.66 billion for the period compared, with a deficit of $1.71 billion for the same period in 2006. First-half exports rose 18.4% from the year before, with a trade surplus for the first six months of $7 billion. Agricultural exports rose 16.5% from January to July compared with the same period last year, well above the initial forecast of 5.5%. Industrial exports rose 16.5% over the first seven months, compared with a target of 13.9%.

The NESDB said exports for the year could grow by 15% if the average monthly growth rate reached 10% during the August-December period.  But exports are more likely to grow by 13% for the whole year, with the figures slowing to 7% over the last five months of the year. The Bank of Thailand last week said July's export growth was just 6.2% in US dollar terms, with declines recorded in both price and volume.

Import growth estimates, meanwhile, were revised to 7.5% for the full year from the earlier forecast of 8.3%. The NESDB projects the trade surplus this year to reach $9.5 billion, up from an earlier forecast of $7.7 billion, with the current account now forecast at $10.2 billion, up from the earlier forecast of $8.5 billion.

The state planning agency said budget disbursements should reach the government's 93% target of 1.56 trillion baht in spending outlined in fiscal 2007. As of Aug 25, disbursements totalled 83.4% of total budgeted spending. The fiscal year ends this month. ''If spending under the 2008 fiscal budget is on schedule, it will help boost overall government expenditures in the fourth quarter,'' Mr Ampon said.

But the NESDB cut its government investment growth target to 3% for the year from 4% earlier, noting that disbursements by state-owned enterprises had to date been lagging, at just 67.7% of total investment spending allocated in the 2007 budget. Private investment forecasts were also cut to 1% for the year from the earlier forecast of 1.5%. Second-quarter private investment fell 0.8% from last year, an improvement from the 2.3% contraction year-on-year posted in the previous quarter.

Bangkok Post, September 4, 2007