NESDB secretary-general Arkom Termpitayapaisit said on Monday that the economy grew at a slower pace in the second three months than in the first quarter, on the back of a slowdown in household spending and private investment and a decline in exports caused by a strong baht and global economic recession.
The state think-tank lowered its growth projection for 2013 to between 3.8% and 4.3% from the previous prediction of between 4.2% and 5.2%, due to a slower than expected global economic recovery, an end to mobilsation from government stimulus measures, a delay in the government's investment plans and continuing political conflict.
Mr Arkom said the NESDB also cut the export target for the current year to 5% from 7.6% and the import target to 6.5% from 7.6%.
The inflation forecast for the year has been lowered to between 2.3% and 2.8% from between 2.3% and 3.3%. The agency also cut its annual investment forecast from 7.9% to 6%, while domestic consumption is now expected to grow 2.6%, down from the previous prediction of 3.2%.
"We still have a chance to grow at the high end of the range if we can speed up budget disbursements and boost exports," Mr Arkom said.
"Economic growth in the second half will rely more on private investment and tourism, as growth in exports and household spending are still limited. Still, those factors are sensitive to the political situation, making it a key risk for economic growth."
While delayed public spending and last year’s high base following the slowdown after the 2011 floods are a challenge, lower inflationary pressure "allows monetary policy to be accommodative", he said. Consumer prices rose 2% in July on the same period last year, compared to 2.25% in June.
"Technically you can say we are in recession, because there have been a two quarters of contraction, but the contraction is due mainly to an abnormal surge in consumer spending last year due to the government's populist policies," said Charl Kaengchon, chief economist at the Kasikorn Research Institute.
GDP grew 18.9% in the fourth quarter of 2012, year on year, and 5.30% in the first quarter this year. The figures were also affected by the great flood of 2011.
The Bank of Thailand will hold the policy interest rate at 2.5% at its Aug 21 meeting, a Bloomberg survey showed, after assistant central bank governor Paiboon Kittisrikangwan said last month that household debt at 80% of GDP limits the scope for further easing.
On July 19, the BoT cut its 2013 GDP growth forecast to 4.2% from 5.1%, citing weakening exports. The monetary policy authority lowered borrowing costs by 25 basis points in May.
Thai consumer confidence fell to the lowest in seven months in July on rising political unrest and the weakening economic outlook.
Earlier this month, the government imposed the Internal Security Act for eight days to contain expected protests as the parliament debated an amnesty bill for political protesters.
The Yingluck Shinawatra administration has tried to speed up its budget disbursements as two trillion baht (US$64 billion) allocated for infrastructure spending and 350 billion baht for water-management projects have been put on hold.
"Exports have remained weak, while domestic demand is also weakening, and the infrastructure spending plan is also delayed," said Kozo Hasegawa, a Bangkok-based foreign-exchange trader at Sumitomo Mitsui Banking Corp. "The outlook for the economy is more severe now," he said, adding that he expects the central bank will keep borrowing costs on hold this week.
Toyota Motor Corp said last month industrywide car sales in Thailand would likely fall 9.5% this year. Total bank loans grew 12.8% in the second quarter from a year earlier, compared with 13.2% in the previous three months, central bank data showed earlier.