Tepid Thai growth deepens Asian slowdown fears

Thailand’s economy grew more slowly than expected in the first three months of this year, adding to a slew of recent disappointing data from other Asian economies that have cast a shadow over one of the world’s fastest-growing regions.

The Thai economy contracted by 2.2 per cent seasonally adjusted from the previous quarter. It grew by 5.3 per cent from the same quarter a year earlier.

The slower growth was the result of faltering Chinese, eurozone, and US demand as well as a strong baht, which recently eased off a 16-year high and has been hurting exports. It followed a surge in 2012 as the Thai economy recovered from the devastating floods of 2011.

The Thai data came at a time when many export-led Asian economies are slowing. China’s growth fell to an annual rate of 7.7 per cent in the first quarter of this year. South Korea, Indonesia, Taiwan, Singapore and Malaysia have also all reported slower growth in recent weeks.

“The general picture [emerging from economic data] is that Asia is slowing and it’s export-led,” said Daniel Martin, Asia economist at Capital Economics in Singapore.

Japan, where a new government and central bank governor have been doing their best to stimulate growth, is providing some hope for the region. Last week, Tokyo said its economy had grown at an annual rate of 3.5 per cent in the first three months of this year. Shinzo Abe, the prime minister, also laid out a series of new targets aimed at securing a longer-term return to growth for Asia’s second-largest economy.

However, for some southeast Asian economies, Japan represents a double-edged sword given the massive monetary easing unleashed by the Bank of Japan as part of its war on deflation. Worries abound that excess yen will spill over into emerging Asian markets, threatening to cause asset bubbles. Japanese have been net buyers of foreign securities in the three weeks to May 11, the most recent data available.

Many economists still remain optimistic about Asia’s prospects.

“The recent data have generally been weaker than most expected but to my mind that is because expectations were unrealistically high,” said Mark Williams of Capital Economics.

“For both Thailand and Malaysia, for example, there were shortlived factors elevating recent growth rates,” Mr Williams said. “As those have dropped away, so growth has slowed. But both Thailand and Malaysia should still grow by 4 or 5 per cent this year which would not be a bad achievement against a weak global backdrop.

Malaysia last week reported its slowest pace of growth since the third quarter of 2009 and Indonesia’s first-quarter growth slipped to 6 per cent year on year.

In both cases economists expect domestic demand to continue supporting the economy for the foreseeable future.

But not everyone is convinced that will remain so forever.

RBS economists have said they believe that domestic demand, the backbone of southeast Asian economies since the 2008 crisis, is “showing signs of fatigue” as measured by recent trends in consumer and business sentiment reports.

They also see weakness in purchasing managers’ indices for the region, which did not show much improvement in April.

With the exception of Indonesia, new export orders “faltered across the board” in other big southeast Asian economies, RBS said in a recent report. “Another feature is that the orders to inventory ratio has deteriorated, implying that an involuntary inventory build-up is happening.”