UPDATE 1-Thailand unexpectedly slips into mild recession in Q2

Sun Aug 18, 2013 11:15pm EDT

(Adds detail, economist comments)

* Q2 GDP q/q -0.3 pct vs poll's +0.2 pct, revised -1.7 pct in Q1

* Q2 GDP y/y +2.8 pct vs poll's +3.3 pct, Q1 revised +5.4 pct

* 2013 growth forecast trimmed to 3.8-4.3 from 4.2-5.2 pct

* Domestic demand moderates, exports soft

By Kitiphong Thaichareon and Orathai Sriring

BANGKOK, Aug 19 (Reuters) - Thailand's economy contracted unexpectedly in the second quarter, slipping into a mild recession, amid weakness in exports, domestic consumption and investment.

Southeast Asia's second-largest economy shrank 0.3 percent in the second quarter from the preceding three-month period, after contracting by a revised 1.7 percent in January-March, data showed on Monday.

The median forecast in a Reuters poll was for growth of 0.2 percent growth. A recession is typically defined as two consecutive quarters of contraction in gross domestic product (GDP).

On an annual basis, economic growth in April-June slowed to 2.8 percent, versus 3.3 percent in the poll, and compared with a revised 5.4 percent in January-March.

Also on Monday, the National Economic and Social Development Board (NESDB) cut its forecast for full-year economic expansion to 3.8-4.3 percent from 4.2-5.2 percent seen in May. A Reuters poll projected 4.0 percent growth.

But economists see some improvement in export and domestic demand in the second half of the year.

"The weaker than expected Q2 GDP growth further pressures the Bank of Thailand to cut its policy rate. However, high credit growth and rising household debt narrow the prospect for a lowering of interest rates," said Bernard Aw with Forecast Pte in Singapore.

"The status quo on the policy is the best way forward, particularly when the central bank sees a pick-up in economic momentum in the second half."

After an interest rate cut in May, the Bank of Thailand's monetary policy committee left the benchmark rate unchanged at 2.50 percent at its July meeting, citing high household debt as a concern.

The central bank has said current monetary settings are still appropriate for growth. It next meets on Aug. 21, and economists expect no change in the rate for some months.

Thailand, like other Asian exporters, has been hurt by prolonged weakness in global demand that is weighing on industrial production.

Domestic consumption - which makes up about half of the economy - also has declined due to the fading impact of government stimulus measures and recovery work after severe flooding in late 2011. Delays in public infrastructure plans have also dragged on investment.

SOME IMPROVEMENT SEEN

Export value in the second quarter totaled US$55.6 billion, a 1.9 percent contraction compared with 4.5 percent growth in the first quarter. The contraction was due to the slow recovery of global economy and the appreciation of the Thai baht.

But economists expected some improvement in coming months.

"Looking forward, moderate growth is likely to extend into the second half of 2013," said Usara Wilaipich, a senior economist at Standard Chartered bank.

"Despite lower downside risks in the U.S., slowing demand from China and Asian economies will continue to drag on Thailand's exports. Meanwhile, domestic demand is expected to grow moderately, given higher household debt and rekindled political risk. We maintain our long-held GDP forecast for 2013 at 4.0 percent percent." (Editing by Kim Coghill)

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