Thai Q4 GDP contraction and weaker outlook firm case for rate cut
BANGKOK —Thailand’s economy unexpectedly contracted in the fourth quarter of 2023 from the third with policymakers downgrading the outlook for this year, adding to pressure for an interest rate cut as risks grow for the tourism-driven economy.
Prime Minister Srettha Thavisin, who is also the finance minister, has been at loggerheads with the central bank over the direction of monetary policy, repeatedly saying rate cuts will help the economy he describes as being in crisis as it confronts high household debt and China’s slowdown.
Gross domestic product (GDP) fell 0.6 percent in the October to December quarter on a seasonally adjusted basis, data from the National Economic and Social Development Council showed on Monday, down from a revised 0.6 percent rise in the third quarter. The first quarterly contraction in a year compares with a 0.1 percent rise forecast in a Reuters poll.
From a year earlier, the economy grew 1.7 percent, slightly faster than a revised 1.4 percent growth in the third quarter but slower than a forecast 2.5 percent expansion.
Major drag in Q4
A major drag in the fourth quarter was a decline in fixed investment, partly due to a delay in the budget, while private consumption stagnated and exports nearly flatlined, Capital Economic said in a research note.
READ: Thailand lowers 2024 GDP growth projection to 2.8%
Kobsidthi Silpachai, head of capital markets research of Kasikornbank, said the fourth-quarter disappointment marked “the first leg into a technical recession”.
Substantial risks and the impact of China’s slowing economy on Thai tourism will exert pressure on the central bank to lower rates, though it might be difficult to move before the Federal Reserve does as it will stoke currency volatility, he added.
Slowing economic momentum raises the chances of a rate cut at the central bank’s next policy review on April 10, after it left this month the key rate steady at 2.5 percent, the highest in more than a decade, in a split vote. Two dissenters favored a rate reduction.
State planning agency chief Danucha Pichayanan told a press conference that monetary policy should support the economy and a quick rate cut would help.
“If it can be done quickly, it should be quite helpful. But we have to look at currency too,” he said.
READ: Thai PM says central bank rate hikes no good for economy
Prime Minister Srettha and his government have repeatedly urged the central bank to cut interest rates, saying they are hurting consumers and businesses.
Interest rate cuts
The Bank of Thailand has said rate cuts will do little to revive Southeast Asia’s second-biggest economy if structural issues persist.
The economy expanded 1.9 percent in 2023, slower than expected, and less than revised 2.5 percent growth in 2022.
For 2024, the state planning agency expects growth to come in between 2.2 percent and 3.2 percent, lower than the 2.7 percent to 3.7 percent it projected in November.
Exports in 2024 were expected to grow 2.9 percent, lower than a previous estimate, while headline inflation was seen at 0.9 percent-1.9 percent, compared with the central bank’s target range of 1 percent to 3 percent.
The economy should not contract in the first quarter of 2024 if exports recover, the agency said
