ECONOMY | Staff Reporter, Thailand

Floods may drag down Thailand’s GDP growth by 2.5% in 2011

It was definitely not Thailand’s year as anaylsts expect the country's GDP to plunge even further.

However, DBS remains hopeful, expecting production to have repeated the stellar performance of August (up 4% MoM) in September.

Here’s more from DBS:

We expect production to have repeated the stellar performance of August (up 4% MoM, sa) in September though that would mean a softer on-year print (6% vs 7%). Production had opened up a large gap with exports and domestic demand through the year pointing to pressure for inventory rebuilding at present. Continued strength in exports and a sharp surge in intermediate imports in September also points in the direction of a strong manufacturing print. Indeed, if the floods had not begun to hurt industrial estates in early October, GDP growth was headed for a strong second-half.

Alas, the floods continue to ravage the country and Bangkok may have the worst of it this weekend when high tides meet the deluge from the outskirts, which will be allowed to drain via Bangkok canals to the sea. With the domestic airport shut and the country still facing the worst of the floods, the impact on GDP is bound to spread to tourism and services sectors too.

The BoT’s GDP growth for the year may thus be downgraded sharply to 2 to 2.5%, though that too might have to be an initial estimate given still ongoing floods. What is unclear and important from the point of financial markets (yet ignored) is the expected 2012 GDP growth. If factories don’t relocate and don’t drastically alter investment plans, output should normalise in 1Q12 and this, even without reconstruction spending or supportive fiscal packages in the short-term, should point to higher-than-trend growth rate in 2012. In fact, lower the growth in 2011, higher it should be in 2012. Our calculations show that 2.5% growth in 2011 should imply (upon normalisation of output in 1Q12) about 7% growth in 2012.



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