* Q1 GDP -2.1 pct q/q and -0.6 pct y/y, worse than forecast
* Political turmoil hits demand, tourism; exports still weak
* Some economists see central bank reluctantly cutting rates again
* Political events this week may determine if crisis near end (Recasts with outlook, political context, fresh comment)
By Orathai Sriring
BANGKOK, May 19 (Reuters) - Thailand’s economy shrank more than expected in the first quarter as exports remained weak and domestic activity was battered by months of political unrest, adding to fears the country is sliding into recession.
Gross domestic product (GDP) contracted 2.1 percent in January-March from the previous three months and was 0.6 percent smaller than a year earlier, the state planning agency NESDB said on Monday.
A Reuters poll of economists had forecast GDP in January-March to shrink by 1.6 percent on the quarter and to grow 0.1 percent on the year.
The planning agency chopped its 2014 GDP growth forecast to between 1.5 and 2.5 percent from 3.0-4.0 percent.
Thailand has been without a proper government since last December and anti-government protesters have promised a final push to oust the caretaker government by May 27. Their leader says he will surrender to the authorities if they fail.
“It’s likely there’ll be recession in the second quarter because all the figures came in bad. But we also have to wait and see the political situation on May 26-27,” said Pragrom Pathomboorn, an economist with KGI Securities.
“If it ends well, the second half will get better. But if it drags on without a functioning government in the third quarter, we think the economy will grow just 0.8 percent this year.”
The political crisis flared up in November. The NESDB revised its figure for fourth-quarter 2013 growth to just 0.1 percent from 0.6 percent, compared with the previous quarter.
Expansion in the rest of Southeast Asia highlights the political drag in Thailand: Malaysia reported annual growth of 6.1 percent in the first quarter while Indonesia, the largest economy in front of Thailand, grew 5.2 percent.
In the first quarter, private consumption and investment growth were worse than expected, “signalling that the impact from the current political impasse on the economy may have been greater than we thought,” said Gundy Cahyadi, an economist with DBS Bank in Singapore.
“Chances are we are going to see another technical recession in the economy, given that the second-quarter GDP number is likely to be rather poor as well,” said Cahyadi, who now expects 2014 full-year growth of less than 2 percent.
Public sector investment fell 19.3 percent in the first quarter from a year before and private investment fell 7.3 percent, the NESDB said, with overall spending down 9.8 percent.
Now, pressure will increase on the central bank to cut interest rates at its June 18 policy meeting. However, the minutes of the Bank of Thailand’s April meeting, when it left the policy rate at 2 percent, said the leeway for easing was limited and the central bank was worried about indebted households and small firms.
“The weaker-than-expected GDP data will put the spotlight back on the Bank of Thailand,” said Benjamin Shatil, an economist with JP Morgan in Singapore.
“But when domestic activity is being weighed down by falling sentiment amid an uncertain political environment, there is only limited support that monetary policy can provide to the economy,” he added.
Thai consumer confidence is at a 12-year low, tourists are staying away from Bangkok and public spending has slumped. Many parts of the economy are feeling the pinch, even the property sector, which proved resilient during previous bouts of unrest.
“If the political crisis drags on until the end of this year, the overall sector could see a contraction of as much as 10 percent,” Rutt Phanijphand, chief executive of home builder Quality Houses, said last week.
The political turmoil is also hurting Thailand’s big auto sector, which accounts for 11 percent of GDP and is the largest in Southeast Asia. Domestic car sales are falling and some 30,000 industry jobs have been lost his year.
Thai Airways reported a quarterly loss last week and expects more red ink in the second and third quarters as “we have been severely affected by the politics”, Chairman Prajin Juntong said.
Tourism accounts for about 10 percent of GDP and visitors dropped about 5 percent in January-April from a year earlier. This month, the Tourism Authority of Thailand cut its forecast for 2014 tourist arrivals to 26.3 million, the lowest in five years, from 28 million.
The NESDB said hotel occupancy in the first quarter stood at 60.3 percent against 72.1 percent in the same period last year.
Some analysts expect exports, which are equivalent to more than 60 percent of GDP, to pick up on the back of a global recovery. So far, the political unrest has been largely contained to Bangkok and has not disrupted ports and factories.
But on Monday, the state planning agency cut its projection for export growth this year to 3.7 percent from an earlier 5.0-7.0 percent.
In January-March, exports fell 0.8 percent from a year earlier and about 0.5 percent from the previous three months, central bank data showed. ($1= 32.4 baht) (Additional reporting by Kitiphong Thaichareon and Pairat Temphairojana; Editing by Richard Borsuk and Alan Raybould)