Thai Economy Shrinks, Adds to Rate Cut Case Amid Central Bank and PM Feud

ECONOMIC GROWTH - BANGKOK. Thailand's economy unexpectedly contracted in the fourth quarter of 2023 and policymakers downgraded the outlook for this year, adding to pressure on the central bank to give in to the prime minister's demands for a rate cut.

Prime Minister Srettha Thavisin, who is also the finance minister, has been at loggerheads with the Bank of Thailand (BOT) 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 fell a seasonally adjusted 0.6% in the fourth quarter, National Economic and Social Development Council data showed on Monday, down from a revised 0.6% rise in the third quarter. The first quarterly contraction in a year compares with a 0.1% rise forecast in a Reuters poll.

From a year earlier, GDP grew 1.7%, faster than revised 1.4% growth in the third quarter but slower than a forecast 2.5% expansion.

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.

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 BOT to lower rates, though it might be difficult to move before the Federal Reserve does as it will stoke currency volatility, he added.

Though weak growth raises the chances of a rate cut at the BOT's policy meeting on April 10, some analysts expect it to stay put to better manage household debt and await more clarity on both the fiscal front and timing of the Fed's policy pivot.

Earlier this month, the BOT left its policy rate steady at 2.50%, the highest in more than a decade.

"Recent comments from the Bank of Thailand have not clearly signalled an impending shift in its policy stance towards easing. That could change after the expected 2023 growth slowdown is now confirmed," Tim Leelahaphan, economist at Standard Chartered Bank, said in a note. He predicted two 25 basis-point cuts in the key rate in the second quarter.

State planning agency chief Danucha Pichayanan told a press conference that a quick rate cut would help the economy.

Thailand's shares and baht were barely changed after the GDP data.

Prime Minister Srettha renewed his call for a cut in interest rates on Monday, saying "a rate cut will help ease the burden of all Thais", and said the 2024 budget should be ready in April, at the earliest.

In response to Reuters' queries, Sakkapop Panyanukul, a senior director at the BOT, said weak fourth-quarter GDP was not a surprise and some indicators, such as private consumption up 7.4%, were higher than earlier expected.

The latest economic data will be discussed at its next policy meeting, he added.

Earlier, Sakkapop said the central bank was ready to cut rates if consumption dropped sharply. But the BOT has also said rate cuts will do little to revive Southeast Asia's second-biggest economy if structural issues persist.

The economy expanded 1.9% in 2023, slower than expected, and less than revised 2.5% growth in 2022.

For 2024, the planning agency expects growth of between 2.2% and 3.2%, lower than the 2.7% to 3.7% earlier projected.

Exports in 2024 were expected to grow 2.9%, lower than a previous estimate, while headline inflation was seen at 0.9%-1.9%, compared with the BOT's target range of 1% to 3%.

The economy should not contract in the first quarter of 2024 if exports recover, the agency said.