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Published: Monday August 20, 2012 MYT 11:45:00 AM

Thai GDP recovering from floods, no need for rate cut


BANGKOK: Thai GDP grew a strong 3.3 percent in the second quarter from the previous three months as the economy continued to recover from devastating floods in 2011, and for now that is helping offset some drag on exports from a slowing global economy.

Given the recovery, economists said there was no pressing need for the central bank to cut interest rates. Most expect it to leave policy on hold for the rest of the year after cuts in November and January to help industry deal with the floods.

The quarterly GDP growth was better than economists' prediction of 1.7 percent although there was an unusually wide range of forecasts. The economy was 4.2 percent higher than a year earlier, beating the forecast of 2.9 percent.

The NESDB, which compiles the data, said manufacturing was still not back to full capacity, but it said exports were better than expected in the second quarter and the economy was also helped by the high number of tourists that came in.

COMMENT

USARA WILAIPICH, ECONOMIST, STANDARD CHARTERED BANK

"Stronger than expected Q2 GDP should support the BoT to continue taking a waitandsee monetary policy stance, as domestic demand remained strong and providing enough cushion against global economic risks, at least for the near future.

"Hence, we continue to believe that the BoT is likely to hold rates at 3.0 percent at the next MPC meeting on Sept. 5."

RADHIKA RAO, ECONOMIST, FORECAST, SINGAPORE

"A rebound in manufacturing activity and strong public spending probably contributed to the firmer than expected Q2 growth numbers.

"Given subdued inflation and ontrack growth, the case for a rate cut has considerably weakened, much to the chagrin of government officials.

"With IMF backing, we expect the BOT to retain its inflationtargeting tenets and keep the benchmark rate on hold until endyear.

"Nonetheless, rhetoric could be peppered with dovish comments to highlight that there is room to loosen policy levers, though it would be contingent on inflationary risks and the euro zone/China growth trajectory."

NUCHJARIN PANARODE, ECONOMIST, CAPITAL NOMURA

"We expected the second quarter to be 3.3 percent yearonyear and the figures came out better than our forecast. For the whole year, we're sticking with 5.5 percent because of uncertainty in the global economy. We think this year Thailand will be driven by domestic demand, both in terms of private consumption and investment.

"We expect exports to grow only 4 percent this year because we expect global GDP growth to not be that high this year and we think the recession in the euro zone will affect our exports.

"We think the Bank of Thailand will leave the interest rate at 3 percent because the second quarter GDP year on year is even better than the central bank forecast." MARKET REACTION:

The baht was at 31.51/54, showing little immediate reaction to the data. The stock market was still closed when the data came out at 0230 GMT.

CONTEXT:

Economists had forecast Southeast Asia's secondlargest economy would grow 1.7 percent in AprilJune from the previous three months and 2.9 percent on the year as it continued to recover from devastating flooding in late 2011.

The floods swamped big industrial zone in October, badly hitting car and electronics firms, many of them big exporters. The Industry Ministry says car makers are now fully operational but some electronics firms may not get back to normal until early in the fourth quarter.

The global slowdown could hurt demand for exports, equal each year to more than 60 percent of GDP. Industrial goods generally account for 65 percent of shipments.

Underlining the external risks, the central bank last month cut its 2012 export growth forecast to 7 percent from 8 percent, after a 16.4 percent rise in 2011.

It also lowered its GDP growth projection to 5.7 percent from 6.0 percent for this year, after just 0.1 percent last year due to the flooding.

Domestic demand and investment are likely to expand, albeit at a slower pace as the need for postflood repairs and replacements is nearing completion. Budget disbursements by the government have been slow.

The central bank has said it is ready to help the economy again if needed after cutting its benchmark interest rate in November and January to help industry deal with the disaster.

It has since left the policy rate at 3.0 percent, and most economists expect no change for the rest of the year unless global conditions deteriorate. - Reuters

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