November 22, 2010 / 6:15 AM / 9 years ago

Thailand in technical recession, rates seen on hold

BANGKOK (Reuters) - Thailand’s economy shrank 0.2 percent in the third quarter after a 0.6 percent contraction in the second, putting Southeast Asia’s second-biggest economy technically in recession and reducing chances of a rate rise.

The data add to scattered signs of a slowdown in Asia — from North Asian export powerhouses China, South Korea and Taiwan to Southeast Asian “tigers” Thailand and Singapore — as manufacturing ebbs and governments’ stimulus spending fades.

Figures last week showed Taiwan’s economic growth slowing in the third quarter, while Singapore’s trade-reliant economy shrank 18.7 percent and Indonesia reported this month its first slowdown in annual growth in five quarters.

From a year earlier, Thailand grew 6.7 percent in the quarter, largely in line with economists’ forecasts and slowing from growth of 9.2 percent in the second quarter, the data released on Monday by the state planning agency showed.

“Looking forward, we expect weaker global demand to bring Thailand’s economic growth to below trend in the fourth quarter of 2010, and in the first half of 2011,” said Usara Wilaipich, a Bangkok-based economist at Standard Chartered Bank.

Malaysian third-quarter data due at 1000 GMT is expected to add to the picture of a regional slowdown with its growth slowing to an annual clip of 5.8 percent from 8.9 percent in the second quarter.

The slowdown, exacerbated by the U.S. dollar’s slide which has driven up currencies and started to erode export revenue, is complicating efforts by Asia’s central banks to return interest rates to normal levels after drastic cuts in the wake of the 2008 global financial crisis.

The Bank of Thailand is likely to keep its trend-setting one-day repurchase rate unchanged at 1.75 percent at its next policy-setting meeting on Dec. 1, said Arkhom Termpittayapaisith, secretary-general of the National Economic and Social Development Board, Thailand’s state economic planning agency.

Private economists echoed that view after the data, which was marginally better than a deeper 0.4 percent contraction expected by most economists in a Reuters survey.

“We expect less aggressive monetary policy by the Bank of Thailand and possible delays on interest rate hikes next year,” said Isara Ordeedolchest, an economist at KT Zeamico Securities, a stock brokerage in Bangkok.

Pimonwan Mahujchariyawong, economist at Kasikorn Research Centre, expects the economy to contract again in the fourth quarter, hurt by a nearly 12 percent rise in the baht this year against the dollar to a 13-year high and floods that have killed more than 200 people since October.

RATES SEEN ON HOLD

Thailand’s debt market has largely priced in a rate pause next month, with one-year swap rates down by 22 basis points in the past two weeks. Government bond yields were barely changed after Monday’s economic data.

Indonesia’s central bank is also seen pausing to keep its policy rate on hold at a record low 6.5 percent well into 2011 as it tries to avoid encouraging an even bigger flow of investment capital to its markets.

Despite the slowdown, Thailand’s state planning agency revised up its forecast for economic growth this year to 7.9 percent from 7.0-7.5 percent projected in August, and tipped growth of between 3.5 percent and 4.5 percent in 2011.

Agency chief Arkhom said the quarterly contraction was due to lower state spending and a slowdown in private investment.

“It’s cyclical that Q3 is usually weaker than other quarters,” he told reporters, adding that the flooding across much of Thailand over October and November shaved economic growth by 0.3 percentage points. He said the fourth-quarter performance depended on strength in exports which his agency expected to rise 25.1 percent this year before slowing to about half that rate of growth next year.

The data puts Thailand technically in recession after the second quarter was revised from growth of 0.2 percent to a 0.6 percent contraction, due largely to political unrest over April and May in which more than 90 people were killed and more than 30 buildings were set on fire in Bangkok.

Additional reporting by Boontiwa Wichaku; Writing by Jason Szep; Editing by Robert Birsel

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