Thailand’s economy ends first quarter of 2019 on weaker note

As widely expected, Thailand’s manufacturing decline accelerated to 2.5% year-on-year in March from 1.6% in February, a steeper drop than the consensus estimate of 2.1%. Our even more bearish forecast of a 3.5% fall rested on an accelerated decline in exports in March. By sectors, electronics have been a stand-out source of weakness in both exports and manufacturing. Weakness in steel and rubber were an added drag in March.

But it’s not just an export-led slowdown. We think domestic demand also weighed on output as a spike in political risks surrounding the general election gripped the economy. A dip in consumer confidence index, a slowdown in motor vehicle sales, and a fall in tourist arrivals speak to this.

Cumulative manufacturing output fell by 1.2% YoY in the first quarter of 2019, a sharp negative swing from the 2.5% growth in the previous quarter. This will have almost certainly dragged GDP growth lower. We consider our 3.1% GDP growth forecast for 1Q19 as having an asymmetric downside risk. The finance ministry has just announced a cut in its GDP growth forecast for 2019 to 3.8% from 4.0% on a view of much slower export growth than previously expected (3.4% vs. 4.5%).

Also released today, balance-of-payments data for March revealed a current account surplus of $6.1bn in the month, barely a narrowing from $6.5bn surplus in February which was the third largest monthly surplus on record. Expectations were centered on a significant narrowing in line with the customs basis trade surplus. In the event, the surplus from goods trade was steady at $3.5bn, while that from services trade fell only slightly.

The cumulative current surplus of $14.6bn in the first quarter more than doubled from the $7.1bn inflow in the previous quarter, which is a hopeful sign of an improved net trade contribution holding a floor under GDP growth.