Thai economy emerges from recession

---- By Tim Johnston in Bangkok

Thailand's economy has broken out of recession, growing 2.3 per cent quarter-on-quarter in the second quarter, but the government warned on Monday that nearly all the growth was driven by increased state expenditure.

Thailand, which depends on exports for some 65 per cent of its gross domestic product, became the latest export-dependent Asian economy to return to growth. Taiwan, Singapore, South Korea and Hong Kong all saw sharp improvements in their economies in the second quarter. However, it remains unclear whether the region's recovery can be sustained when government spending eases.

The National Economic and Social Development Board, which released the latest GDP figures, said that the economy had declined by 4.9 per cent year-on-year, an improvement from the 7.1 per cent decline in the first quarter.

"This [was] caused mainly from an expansion of government consumption by 5.9 per cent. In addition, household consumption expenditure and investment decreased by 2.3 per cent and 10.1 per cent [year-on-year] respectively," the report said, noting that these falls were an improvement from the first quarter data.

Earlier this year, the government announced a Bt1,430bn ($43bn) three-year stimulus programme to boost the economy.

The NESDB refined its full-year GDP projection to a contraction of between 3 and 3.5 per cent, at the bottom end of the forecast for a 2.5 to 3.5 per cent contraction that it gave in May.

There were some bright spots. Production of office machinery expanded by 4.9 per cent due to an increase in output in hard disc drives and other computer equipment, and construction increased by 2.5 per cent compared to the first quarter drop of 7.9 per cent, but the report noted that the building boom was almost entirely government-driven.

And there was some encouragement from production of domestic appliances such as air-conditioners and fans. Although output was still down 8.7 per cent year-on-year, it was a marked improvement from the 25.4 per cent reduction last quarter.

Other parts of the economy are still languishing. Motor vehicle output was down 34.9 per cent year-on-year, slightly better than the 42.4 per cent drop in the first quarter, but a sobering statistic for a sector that accounts for 10 per cent of GDP.

Manufacturing in general was down 8.4 per cent, an improvement from the 14.4 per cent drop in the first quarter.

And there was more bad news for the tourism sector. Hotel occupancy rates fell from 54.3 per cent this time last year - it is the low season for tourist arrivals – to 41.7 per cent last quarter, depressed by both the global recession and Thailand's continuing domestic political unrest.

---- from Financial Times