BoT: Brace for Q1 Contraction

Cranes at a construction site build a mixed-use project on Rama IV Road. The Bank of Thailand is wary that growth could contract in the first quarter due to the fragile economic recovery. PATIPAT JANTHONG

Economic growth on a quarterly basis will certainly contract in the first quarter if the year-on-year growth rate comes in at below 4%, a sign of fragile economic recovery, says a senior Bank of Thailand official.

If the economy in the first three months was to record a positive figure for quarter-on-quarter GDP growth, then an annual growth rate of 4% would be registered, said Don Nakornthab, director of macroeconomic policy.

"If the figure appears at 3% [year-on-year] as the deputy prime minister predicts, then quarter-on-quarter growth would contract," he said.

"There's a real chance of that happening following the economic figures that we've tracked."

A possible contraction in GDP growth on a quarterly basis indicates weaknesses in the recovery momentum, Mr Don said.

Deputy Prime Minister MR Pridiyathorn Devakula recently estimated growth would reach 3% year-on-year or higher in the first quarter, saying public and private investment coupled with a recovery in tourism would help to offset the impact of tepid exports, which are expected to decline by 4% in the quarter.

The economy expanded by 0.7% for the full year in 2014 after political unrest and sluggish export growth caused it to contract by 0.1% in the first half.

Growth in the fourth quarter was 2.3% year-on-year and 1.7% quarter-on-quarter on a seasonally adjusted basis, according to the National Economic and Social Development Board (NESDB).

Mr Don said lukewarm private consumption and dismal export growth had contributed to the likelihood of economic growth contracting on a quarterly basis.

But it is not unusual for growth to contract on a quarterly basis following a considerable positive figure in the preceding quarter, he said, adding that the economy remained on a recovery path albeit at a fragile pace.

The possibility of a technical recession occurring is minimal at the moment, however, as exports are expected to pick up this quarter, while fiscal budget disbursement and public investment should accelerate in line with the government's investment plans, Mr Don said.

A technical recession is defined as two consecutive quarters of negative economic growth as measured by seasonally adjusted quarter-on-quarter figures of real GDP.

The NESDB is scheduled to announce Thailand's first-quarter GDP figures on May 18.

In a related development, Mr Don said the baht's relative strength was in line with its regional peers.

The baht rose by 1% against the US dollar from March 10 to the morning of April 21 thanks to fund inflows into Thailand's bond and stock markets resulting from possible delays in the US Federal Reserve's rate hike decision as well as the termination of martial law.

In comparison, the yuan rose by 1% in the same period, while the ringgit appreciated by 1.6%, the Singapore dollar by 2.8%, the rupiah by 1.2% and the South Korean won by 3.5%.

Capital inflows into the bond market from April 1-16 totalled US$492 million, while the equities market registered inflows worth $204 million from April 1-20, central bank data show.

In the meantime, Finance Minister Sommai Phasee has dismissed rumours about reshuffling permanent secretary Rungson Sriworasat.

Mr Sommai said he told the ministry's high-ranking officials that he would appoint a new director-general of the Public Debt Management Office (PDMO) to fill the shoes of the late Kritsada Uthayanin.

"I told the meeting there will be no reshuffle of the permanent secretary, but some positions will be moved around. Reshuffling will be done in October after several senior officials retire," he said.

A Finance Ministry source said inspector-general Suwit Rojanavanij was tipped to head the PDMO, while deputy permanent secretary Amnuay Preemanawong was picked to head the Comptroller General's Department, replacing Manas Jamveha, who would become deputy permanent secretary.

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