NESDB announces strong 1Q02 GDP growth of 3.9%, but warns of excessive growth in consumer credit

The National Economic and Social Development Board (NESDB) reported strong 1Q02 GDP growth of 3.9% yesterday, well above market forecasts of 3% but below our earlier forecast of 4.5-4.8%. In the previous quarter, the Thai economy expanded by 2.1%.

The strong growth in 1Q02 was due mainly to 3.6% growth in private consumption expenditure, 7.8% growth in private investment and 16.4% growth in net exports of goods and services.

The NESDB also announced that has revised up its GDP estimate for 2002 to 3.5-4% from the previous 2-3%. We expect economists with the Ministry of Finance, Bank of Thailand and the IMF will need to revise up their forecasts again. Currently, the Ministry of Finance is projecting growth of 3.6%, the Bank of Thailand 2.5-3.5% and the IMF 3.2%.

While the NESDB offered good news on economic growth, it also highlighted a number of risk factors that could derail economic recovery, including the contracting Japanese economy, the extent of the US economic recovery, export prices and the impact of increasing competition from China, drought, reentry NPLs and excessive growth of consumer credit.

Our own forecast of 3.8-4.2% is based on a low interest rate environment being maintained, a stable exchange rate of Bt42-44/US$, export prices gradually improving and a US economic recovery in the second half of this year.

We believe the Bank of Thailand should aim for moderate, sustainable GDP growth in the range of 4-5% over the next several of years. The central bank may have to rein in consumer credit, particularly through the extension of credit cards to low-income workers. This could endanger financial institutions, as the NESDB pointed out, but we are more afraid in the near-term of rising imports of consumer goods, worsening trade deficit, a weakening baht and loss of confidence.

• GDP by Production

Overall production expanded by 3.9% in 1Q02, compared with 2.1% in 4Q01. Strong growth was seen in both the agricultural and non-agricultural sectors. The agricultural sector grew by 5.1% with crop yields increasing by 7.8% due to favourable weather and the absence of major plant diseases. Livestock production, meanwhile, grew by 4.0%, primarily due to strong chicken prices and exports.

Non-agricultural production grew by 3.8% in 1Q02 compared with 1.8% in the 4Q01. The strongest growing sectors were mining & quarrying (+13.3%) and construction (+6.7%).

Source : NESDB

• GDP by Expenditure

Household consumption expenditure expanded by 3.6%, a slight improvement from previous quarter's 3%. The growth was fueled by improvement in farm income, low interest rates and readily available credit. Government consumption expenditure in real terms soared by 8%, which was mainly due to the government’s policy of increased spending on social programmes rather than large infrastructure projects.

Private sector investment grew by 7.8% in 1Q02, due to the recent recovery in housing demand, low interest rates and government housing stimulus policy. While public sector investment contracted by 5.1% as a result of the completion of some mega-projects and the delay in implementation of others.

Although the value of exports in the quarter fell by 6.3% in dollar terms, export volume actually increased by 3.9%. Meanwhile, import volume was virtually flat, down 0.9% year-on-year.

Source : NESDB