Surprisingly strong 2Q02 GDP growth of 5.1%

The National Economic and Social Development Board (NESDB) reported yesterday very impressive second quarter GDP growth of 5.1%. This was at the high end of market expectations and our own estimate range of 4.7-5.2%. For the first half of 2002 Thai economy expanded at 4.5%, compared to only 1.8% in 2001.

The strong 2Q02 economic growth was supported by both domestic and world market demand. Private consumption expenditure in 2Q02 grew by 3.8% while private investment rose by 9.8% and net exports of goods and services expanded by 13.8%.

The NESDB also announced that has revised up its 2002 GDP estimate to 4.0-4.5% from the previous 3.5-4.0%. Last month, MOF adjusted its GDP estimate for 2002 to 4.00-4.25% from 3.60%, but the Bank of Thailand has not yet officially change its projection of 3-4%.

The stronger-than-expected 2Q02 GDP growth clearly indicates that the Thai economy has momentum going into the second half of this year. In August, auto sales increased 51.2% yoy and motorcycle sales by 57%. Meanwhile, ADVANC was able to capture one million gross new subscribers in the month. Supporting factors for second half economic growth include: 1) low interest rates, 2) increase in corporate sector profitability which is encouraging new investment and 3) the continuing economic recovery of many of Thailand’s trading partners, particularly in Southeast Asia.

At this point, we are revising up our full-year GDP growth forecast from 3.8-4.2% to 4.0-4.2%. We are, therefore, conservatively assuming a slight slowdown in the second half of the year given recent indications of a weakening US economy. Currently, the market is worried about the potential of a double-dip recession in the US as well as the consequences of a possible US military strike aimed at toppling the regime of Saddam Hussein. Some of other potential risk factors to recovery are raising oil prices, decreasing export prices, uncertain stock market conditions and slow progress in resolving the non-performing loan problem.

Source : National Economic and Social Development Board, 17 Jun 2002

• GDP by Production

Overall production expanded by 5.1% in 2Q02, compared with 3.9% in 1Q02. The strong growth was buoyed by the 5.4% increase in the non-agricultural sector, particularly the manufacturing and construction sectors.

Agricultural sector increased by 2.0% compared to 5.2% in 1Q02. Crop production grew by 3.4% and livestock production rose 5.5%, reflecting the growth in external demand for frozen chickens. But, fisheries contracted by 8.5% in line with a drop in the production of frozen shrimp as low prices discouraged new cultivation.

The manufacturing and construction sector increased 6.7% and 18.6%, respectively. The manufacturing sector was driven by an increase in output across a wide range of product categories - from export to domestic and from consumer products to intermediate goods – including radios, televisions, transport equipment, construction materials and food & beverages. Meanwhile, construction activity picked up on the back of a sharp increase in government and private sector investment. Private construction rose by 17.6% thanks to the recent house building boom, while the resumption in government spending on several large-scale infrastructure projects lifted government construction by 19.3%.

Source : NESDB

• GDP by Expenditure

Consumption expenditure : Private consumption expenditure expanded by 3.8%, a slight improvement from previous quarter's 3.6%. This was due to a continuing improvement in both farm and non-farm income. The rise in private consumption expenditure was mostly in durable goods and services. At the same time, government consumption expenditure in real terms contracted by 3.7%. This was due to a 15.4% decrease in state purchases, while compensation of state employees rose by 3.1%.

Gross fixed capital formation : Private investment grew by 9.8% in 2Q02, compared to 7.8% in 1Q02. This was due mainly to the recent recovery in housing demand, low interest rates and government housing stimulus policy. While public sector investment expanded by a slight 2.8% since the previous year’s number was inflated by Thai Airways’ purchase of two new airplanes.

External sectors : Although the value of exports in the quarter fell by 2.6% in baht terms as a result of baht’s appreciation, export volume actually increased by 12.9%, compared to 3.9% in 1Q02. Meanwhile, import volume increased by 12.8%. When combined with net services, the net export of goods and services increased by 13.8%.

Source : NESDB