* Q2 GDP +1.3 pct q/q sa, vs +1.0 pct in Reuters poll
* Q2 GDP +3.7 pct y/y vs +3.2 pct in poll
* 2017 GDP growth outlook raised to 3.5-4.0 from 3.3-3.8 pct
* Thailand’s Q2 GDP caps strong quarter for Southeast Asia (Adds details, quotes, economic and political context for Southeast Asia)
By Orathai Sriring and Kitiphong Thaichareon
BANGKOK, Aug 21 (Reuters) - Thailand’s economy capped a solid performance for Southeast Asia in the second quarter, growing at its fastest clip in over four years thanks to strong exports - a common denominator for many countries still struggling to boost private consumption despite ultra-low interest rates.
Robust tourism and farm output also helped Thailand’s growth beat market expectations in the April-June quarter, prompting the government to raise its economic forecasts in a sign the recovery is gaining momentum.
Southeast Asia’s second largest economy joins a host of other countries in the region, including Singapore, Malaysia, the Philippines and Taiwan, which have seen growth speed up as an upturn in global demand hovered up the region’s electronics, home appliances and other consumer goods.
The main risks for the region, including Thailand, stems from rising U.S. trade protectionism, an expected slowdown in China’s economy and higher U.S. interest rates.
Thailand’s gross domestic product (GDP) grew a seasonally adjusted 1.3 percent in the June quarter from the first, the National Economic and Social Development Board (NESDB) said on Monday, faster than the 1.0 percent forecast in a Reuters poll and matched the March quarter’s pace.
On a yearly basis, growth was 3.7 percent, the quickest rate in more than four years, and easily beating the median forecast of 3.2 percent and the 3.3 percent pace clocked in January-March.
“We expect growth to remain relatively strong over the next couple of quarters, helped by strong external demand and loose monetary and fiscal policy,” said Gareth Leather, senior Asia economist at Capital Economics in a client note.
Thailand’s economic growth has lagged its regional peers since 2014, when the army seized power to end months of political turmoil. The junta has ramped up spending in a bid to boost growth, but big-ticket infrastructure projects have been slow getting off the ground.
Private investment has remained weak for more than four years while high household debt has crimped consumption.
The government has said it will hold an election later next year, although no dates have yet been set.
“The uncertain political situation is the main risk to the outlook,” Capital Economics’ Leather said.
Politics is also a risk factor in the Philippines as President Rodrigo Duterte wages a deadly war on drugs, while in Malaysia speculation is rife that Prime Minister Najib Razak will call early polls to take advantage of improving economic conditions and a fractured opposition. In Indonesia, the only Southeast Asian economy that failed to top expectations in the second quarter, the central bank has flagged a possibility of more monetary easing to support growth and boost private demand.
A strong baht presents an additional headwind to Thailand’s export-driven economy though the government said it sees no significant dent to growth from the currency’s rise.
The baht is Asia’s best performing currency this year, having appreciated 7.8 percent against the dollar.
Citing the upbeat second quarter numbers, the planning agency raised its 2017 economic growth forecast to 3.5-4.0 percent from 3.3-3.8 percent projected earlier. Last year’s growth was 3.2 percent.
It upgraded its export growth outlook to 5.7 percent from 3.6 percent. Exports, worth about two-thirds of the economy, have started recovering in 2017 after years of weakness.
The baht’s strength has not hurt exports as global growth remains high, NESDB chief Porametee Vimolsiri told reporters
In the second quarter, merchandise exports rose 5.2 percent from a year earlier and the agricultural sector grew a strong 15.8 percent. Private consumption rose 3.0 percent, down from 3.2 percent in the first quarter, and government investment fell 7 percent.
Last week, Thailand’s central bank left its key interest rate at 1.5 percent, where it has stayed for more than two years, and most economist expect policy to remain stimulatory for the rest of the year.
“Looking ahead, domestic demand must pick up if the recovery is to be sustained,” ANZ economist Eugenia Fabon Victorino said in a note.
“The weakness in private domestic demand is likely to keep inflationary pressures at bay. Thus, we continue to expect the Bank of Thailand to keep its policy rate unchanged through 2017”.
Editing by Shri Navaratnam