BANGKOK – Thailand’s economy continued to struggle in the second quarter of 2014, with the country’s growth and manufacturing activity dropping—a scenario that highlights concerns over the junta’s ability to revive consumption and investment hit hard by months of political instability.
Thailand’s Finance Ministry reported Wednesday that the local economy shrank 0.3% year-over-year in the second quarter of 2014, although it grew 0.2% on a quarterly basis during the same period.
The Bank of Thailand earlier said the local economy likely contracted 0.4% on an annual basis during the months of April and June of this year.
“In June and the second quarter of this year, there continued to be signs of slowdown in the tourism sector and private spending,” said Kritsada Jinavijarana, director-general of the Finance Ministry’s Fiscal Policy Office.
The annual contraction led the ministry to lower its 2014 growth forecast to 2% from an earlier projection of 2.6%.
In the first quarter of 2014, Thailand’s economy diminished by 0.6% from a year ago and 2.1% from the quarter before. The country’s economy expanded 2.9% in 2013.
The government’s economic planning agency, the National Economic and Social Development Board, which is in charge of all economic data reports, is scheduled to release Thailand’s official GDP report on August 18.
The Finance Ministry’s latest projection, however, was still rosier than the Bank of Thailand’s forecast of 1.5% gross-domestic-product growth for 2014 and much more optimistic than many economists, including the bearish view of Moody’s Analytics which projects an economic contraction for Thailand in 2014.
“We’re expecting the Thai economy will contract 0.4% through 2014 and when you see prints, like the latest production numbers, they kind of indicate our forecast,” said Fred Gibson, an economist at Moody’s Analytics in Australia.
Earlier in the day, official data showed that Thailand’s Manufacturing Production Index fell for the 15th consecutive month in June.
The MPI, which measures the volume of production and indicates the direction of the country’s manufacturing sector, fell 6.6% from a year earlier in June, steeper than a revised 4% decline in May, the Office of Industrial Economics at the Industry Ministry said Wednesday.
Somchai Harnhirun, director general of the OIE, attributed the latest slide in the country’s MPI to weak domestic demand and a slowdown in spending, particularly for automobiles and the electrical appliances.
Thailand’s vehicle production was 26.1% lower than a year earlier in June while electrical-appliance output fell 8.73% over the same period, as consumers refrained from spending due to sluggish economic conditions in the country.
Capacity use at factories fell to 60.61% in June from a revised 61.56% in May, even as the junta approved $6.3 billion worth of investment incentives for more than 100 projects.
“I think the weakness in production has stemmed from the overall slowdown in the economy that the political crisis has brought about,” said Mr. Gibson of Moody’s Analytics which projected a 3.2% contraction for June’s MPI.
Thailand’s army chief Gen. Prayuth Chan-ocha successfully seized power from an elected government on May 22, ousting the government of former Prime Minister Yingluck Shinawatra —after months of political rallies, social unrest and street violence which have put the economy on the brink of a recession.
Right after the coup, the junta, which earlier this week adopted a provisional charter to pave the way for the establishment of an interim government, has been implementing various measures to shore up the economy—including the disbursement of overdue payment worth about $2.7 billion to farmers who participated in the state rice-subsidy program and the approval of investment incentives to over 100 projects worth $6.3 billion as well as a $75-billion infrastructure-development plan.
While all these attempts to revive the economy have provided an upside to the economic outlook, a sense of uncertainty lingers as consumption and investment remain shaky.
“The only consolations are the improving investor sentiments (seen from recent net equity inflows into the Stock Exchange of Thailand), mild recovery in consumer confidence, and a relatively stable government body,” said Barnabas Gan, an economist at OCBC Bank in Singapore. “The lackluster first-half-year data, to us, will merely be water under the bridge as we focus on the recovery expected in the second half of 2014.”
Mr. Kritsada of the Finance Ministry’s Fiscal Policy Office hopes local spending and manufacturing activity will start to improve during the remainder of the year, when exports and government spending are expected to grow further due to stronger consumer and business confidence.