Surprisingly strong 3Q03 GDP growth of 5.8%

National Economic and Social Development Board (NESDB) reported yesterday surprisingly strong 3Q02 GDP growth of 5.8%. This indicates that the economic recovery continues to strengthen from the 3.9% growth recorded in the first quarter and 5.1% in the second quarter. For the nine-month period, the Thai economy expanded by 4.9% yoy.

The strong economic growth in 3Q02 was supported by both private consumption and private investment as well as increasing export volume.

1. Export volume in 3Q02 grew by 14.7% yoy, supported by the pickup in the economies of Thailand’s regional trading partners and the upturn in electronics cycle. Export growth was particularly strong to ASEAN markets as well as China, South Korea, Hong Kong, Taiwan and Australia.
2. Private consumption expanded at an accelerated rate of 5.0% in 3Q02, mainly attributable to low interest rates, higher farm income, improving employment and improved consumer confidence.
3. Private investment: jumped by 18.7% due to strong domestic demand, improved export performance, low interest rates and government measures aiming to stimulate housing demand, as well as new credit extension for property and real estate development by local financial institutions.

Production in 3Q02 broadly improved in terms of both production for domestic consumption and production for export. The manufacturing sector expanded at a rate of 9.0% yoy compared to 6.8 percent in 2Q02. The financial sector, which had previously been hamstrung with high levels of bad debt, made progress in resolving NPLs and have begun to expand credit again. In 3Q02, the financial sector recorded growth of 4.6%, a significant improvement over the previous quarter’s growth rate of 2.7%. However, the construction sector, which had improved significantly in 2Q02, showed no further expansion in 3Q02 due to a decrease in public sector investment in construction.

Contribution to growth of real GDP (1988 = 100) (Unit: Percent)

Source, office of the National Economic and Social Development Board (NESDB)

Economic outlook for 2002-2003

NESDB revised up its 2002 economic growth forecast to 4.9% from the previous range of 4.0-4.5%. The latest Bank of Thailand monthly economic figures for October indicate that the economic growth will remain strong into the 4Q02, supported by continuing strong domestic consumption, buoyant property and auto markets due to low interest rates and only limited impact from the September nationwide floods.

Looking ahead to 2003, the NESDB highlighted two major risk factors: 1) potential US-led military action against Iraq; and, 2) fragile economic recovery of major advanced economies. Adding to this, we believe that the volatility of capital markets worldwide could have further negative consequences on the market and on foreign fund flows.

There is considerable momentum in the Thai economy going into next year. However, given the two risk factors mentioned above, the NESDB appears to be adopting relatively conservative forecast. The NESDB believes that the Thai economy will re-accelerate again in the second half of next year.

The NESDB identified the following major factors driving 2003 economic growth.

1. Improving confidence levels for both investors and consumers.
2. Low interest rates.
3. An increase in farm income due to improving crop prices.
4. Accommodative government measures have already been implemented will continue to support private consumption and investment.
5. A significant recovery of the economies within the region, supporting continuing growth in Thai exports.
6. Economic stability both internal and external.

We view the NESDB’s 2002 GDP growth forecast of 4.9% rather conservative. With 9M02 GDP growth already at 4.9%, the NESD appears to be forecasting a slowdown in the economy in the last quarter. Assuming that the economy grows by 5.3% in 4Q02, Thailand’s overall 2002 economic will grow by 5%. Judging from the very strong October economic figures reported by BOT, we believe the final number will come in higher than 5%.

Economic growth 2002-2003