Thai GDP growth slowed in Q2, with yuan denting outlook

In terms of production, a fall in agricultural output steepened to 5.9 percent in the second quarter from 4.7 percent in the first quarter, while the output growth in non-agricultural sector eased to 3.5 percent from 4.1 percent.

Thailand’s economy expanded 0.4 per cent in April-June from the previous quarter, slightly more than expected but unlikely to spur optimism that its growth outlook is improving significantly.

Thailand’s economy will remain anemic, said Capital Economics’Krystal Tan.

Weak growth has dogged the Thai junta’s narrative that its takeover was a necessary evil to keep the peace and bolster the economy in the face of prolonged political turmoil. And some economists believe even the new forecast is too ambitious.

The Thai government’s economic planning agency now expects exports to contract 3.5% in 2015, compared with a previous forecast for 0.2% growth.

China’s central bank shocked world financial markets last week when it devalued the yuan, sparking fears of a currency war in Asia in which countries vie to keep their exports competitive.

Despite an expected increase in government spending and tourist arrivals, Thailand’s economic growth will be hampered by sluggish exports, which account for two-thirds of GDP.

The economy grew just 0.9 per cent past year.

“Entering the new fiscal year starting from October the government has pledged to start disbursing the budget immediately so that’s also positive for this calendar year as well”, said Tim Leelahaphan, economist at Maybank Kim Eng. Tourism spurred the economy and partially offset export contraction.

Government spending rose 4.6 per cent in April-June from a year earlier, picking up the first quarter. Meanwhile, the recent decline in capacity utilisation bodes poorly for private investment growth.

The Bank of Thailand earlier this month left its benchmark interest rate unchanged at a five-year low, and said risks persist from the drought and China’s slowdown.

Exports and domestic demand remain stubbornly weak.