“Thailand always amazes you” proclaims the Southeast Asian nation’s tourism body, and with an 18.9 percent rise in gross domestic product last quarter economists were suitably impressed.
While the eye-popping growth figure reflected the impact of devastating floods in the prior year, economists were reportedly surprised by the growth performance, which was above the consensus estimate of 15 percent and even the highest forecast of 17 percent.
The economic expansion was aided by a 31 percent rise in public investment, a 22 percent increase in private investment and a 12 percent gain in household consumption and government spending. Manufacturing output surged 37 percent, aided by record car production, while the tourism industry enjoyed a near 40 percent increase in arrivals.
"The economy has recovered fully from the flood disaster," Arkhom Termpittayapaisith, secretary general of Thailand’s National Economic and Social Development Board (NESDB), told Thai daily The Nation.
"Bolstering growth this year is the improvement in the global economic situation, as witnessed in the U.S., China and the eurozone, which will boost export volume and value.
"Coupled with recovery in electronics manufacturing, wage-induced increases in consumption and infrastructure investment, gross domestic product will further expand by 4.5 to 5.5 percent this year."
The Thai think tank expects growth will be boosted by an 11 percent rise in exports and 8.9 percent increase in total investment, along with a 3.5 percent gain in household consumption.
NESDB’s projection is similar to the central bank’s estimate of 4.9 percent growth in 2013, with risks seen from higher minimum wages and any further weakening of the eurozone, along with further gains in the baht currency.
On Wednesday, the Bank of Thailand kept interest rates steady for a third straight month, resisting government calls for more easing to dampen a rising exchange rate.
As forecast by most economists, the central bank kept its benchmark one-day bond repurchase rate at 2.75 percent.
Central bank governor Prasarn Trairatvorakul has ignored calls from Thai Finance Minister Kittiratt Na-Ranong for further interest rate reductions, despite the baht reaching a 17-month high in January.
“The strong economic data justifies the decision to hold the interest rate to control inflation,” Sukit Udomsirikul, head of research at brokerage Maybank Kim Eng Securities, told Bloomberg News.
“The rate decision indicates the central bank’s independence in implementing its monetary policy. This bolsters investors’ confidence.”
According to Bloomberg data, the baht has enjoyed the biggest gains this year among 11 widely-traded Asian currencies, putting pressure on goods exporters along with the important tourism industry.
Yet Thailand is still considered an attractive base for regional manufacturers such as companies from Japan, which are seeking to avoid rising labor costs in China in addition to political risks.
ANZ economist Eugenia Fabon Victorino expects official interest rates will remain steady throughout the first half of this year, amid modest core inflation of 1.78 percent in December 2012.
However, he noted in a research report that potential upside risks to the core inflation outlook, such as second-round effects from minimum wage hikes, could trigger a 0.25 percentage point rise in rates in the second half of 2013.
Trade boost eyed
An active member of ASEAN, Thailand’s economy could see a 4 percent boost to its GDP should the proposed Regional Comprehensive Economic Partnership (RCEP) become a reality.
According to a Thai study, its products would gain more market access in the 15 other countries that are parties to the RCEP, such as cars, electronics, foods and plastics.
The 10 ASEAN member states are expected to hold talks in Indonesia on February 26-28 with six nations the organization maintains free trade agreements with: Australia, China, India, Japan, New Zealand and South Korea. The RCEP could become one of the world’s largest free trade zones, encompassing 27 percent of global GDP and nearly half its population.
The RCEP talks are scheduled to be completed by 2015, when the ASEAN Economic Community (AEC) comes into effect.
"If all countries agree, the RCEP negotiations should officially start this year to ensure that the pact could be complete by 2015 amid the AEC integration. This would make the ASEAN region the center of Asian economic connectivity with this linkage to six other economic giants," Thai commerce ministry official Piramol Charoenpao told The Nation.
Nevertheless, Thailand’s central bank faces a balancing act in containing inflation while preventing a stronger baht from wrecking its export-led economy. But should it sustain its strong growth in the face of external threats, the country’s performance might well prove worthy of its tourism slogan.