Thailand’s GDP expanded 0.7% q/q in Q2, to be 2.5% higher than a year ago, as the boost from the removal of domestic restrictions and reopening of borders partly offset large drags from public spending and inventories.

We expect momentum to ease over H2 amid rising external headwinds with today’s softer-than-forecast outcome likely to see us nudge lower our 2022 GDP growth forecast of 4%.

Sian Fenner, Lead Economist at Oxford Economics

Still, with the private domestic demand recovery set to gain further traction over H2 Oxford Economics expect the BoT to raise the policy rate once more this year, by 25bp to 1%. But the odds of 25bp at both the September and November meetings, in our view, has fallen.

GDP growth in Q2 weaker than expected

GDP growth picked up to 2.5% y/y in Q2 from 2.3% in Q1 2022, weaker than what the market were expecting. Growth momentum was also somewhat disappointing, yet at 0.7% q/q, was broadly at trend.

A breakdown of GDP showed that growth was uneven. Encouragingly, the recovery in household spending gained further traction, rising 6.9% y/y (1.7% q/q) following a more substantive easing in domestic and border restrictions.

Recovery in investment remains bumpy

But the recovery in investment remains bumpy. Total investment fell 1% y/y as a healthy pick-up in private construction was more than offset by weaker public investment and weaker overall machinery and equipment. Public spending was also a drag on growth.

Meanwhile, export growth eased to 8% y/y, as China lockdowns weighed on goods exports. That more than offset a 54.4% y/y surge in service exports, as tourism numbers while rising remain well below pre-Covid levels.

With imports growing strongly, net exports subtracted 0.4ppt from headline GDP growth, a notable turnaround from the strong 3.4ppt contribution in Q1.

We expect services to be an increasing driver of growth this year, led by increased consumer and tourism spending. But economic momentum is poised to cool later over H2, partially due to fading catch-up growth in discretionary services but also weaker global trade.

Sian Fenner, Lead Economist at Oxford Economics

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