Recovery gains momentum

The economy has likely turned around with a small growth in the second quarter on the back of improving sentiment following the military takeover, ending the political impasse that crippled economic activities, economists say.

Kasikorn Research Centre managing director Charl Kengchon forecast that GDP in the second quarter is likely to have grown at an annual rate of 0.6% and 0.4% on a quarterly basis. Such growth figures are considered marginal.

Some level of economic growth was achieved in the second quarter since political stability returned in late May, he said.

After the power seizure by the National Council for Peace and Order on May 22, the economy has been brought back to life after the junta facilitated delayed rice payments to farmers under the rice-pledging scheme and a trade surplus of exports exceeding imports in the second quarter also contributed to the growth momentum, said Mr Charl.

As months-long political turmoil took a toll on domestic activities, the economy experienced a 2.1% quarter-on-quarter contraction from January to March, while growth declined by 0.6% on an annual basis.

The economists' projections appear to be more optimistic than those of government agencies.

The Fiscal Policy Office (FPO) recently estimated a 0.3% year-on-year contraction in second-quarter GDP. If the Finance Ministry's think tank is correct, that would mean a first half contraction of just 0.4%. 

The second-quarter GDP figures are due on Aug 18.

Mr Charl said lukewarm growth in June was attributed to how confidence had not fully normalised yet as businesses and consumers awaited clearer developments after the coup.

However, certain economic indicators showed signs of recovery, he said, citing improved imports of capital goods as an example.

Capital goods imports increased by 0.4% year-on-year in June, up from a 12.7% contraction a month earlier, according to the Customs Department.

Flat growth is, however, projected in the first half due to the prolonged political unrest denting growth impetus in that period, he said.

Mr Charl said the Bank of Thailand's forecast of a V-shaped recovery beginning in the third quarter was possible thanks to the Board of Investment's approval of investment applications and resumed fiscal policy contributing to public investments expected to commence in the fourth quarter.

A base effect also contributes to an enhanced economic outlook in the second half of this year since last year's second half recorded a sluggish growth rate.

The recovery momentum is expected to begin from the third quarter and extend into the first quarter of 2015, he added.

Kasikorn Research Centre projects GDP growth of 4% in the second half.

Despite sentiment improving in June, real economic data did not recover substantially since the curfew remained in place until mid-June and curbed consumption, said Kampon Adireksombat, head of Tisco Securities' economic strategy unit.

Martial law also dented tourist arrivals during that month, he said.

Mr Kampon said growth in the second quarter would be likely to come in at 0.8% year-on-year and 1.2% quarter-on-quarter, noting that a flat growth rate is likely for the first half.

Although domestic consumption and investment could pick up further, economic data may still record a slight contraction in July because consumption of low-income earners, such as farmers, could be subdued since agricultural prices have not improved, he said.

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