Thailand's soggy output casts doubt on strength of recovery

BANGKOK Fri Sep 27, 2013 12:31am EDT

BANGKOK (Reuters) - Thailand is expected to lower its growth outlook this year as sluggish manufacturing output from weak global demand threatens to put the brakes on a turnaround.

The fifth straight month of contraction in manufacturing output, worst than the market had expected, has fanned debate on when the economy can pull out of recession. Thailand is grappling with a widening current account deficit and capital outflow pressures ahead of a tapering in U.S. monetary stimulus.

Some analysts see Thailand's fortunes improving into the year-end on supportive policies and better external conditions.

"The outlook should be positive, judging from improvement in international countries which should support the export and industrial sectors," said Pimonwan Mahujchariyawong, an economist at Kasikorn Research Center, adding that output should improve in the final quarter of the year.

Weakness in exports and slowing domestic demand pulled Thailand into a mild recession in the second quarter, as Southeast Asia's second-largest economy shrank on a quarterly basis in each of the first two quarters.

Thai authorities have said the economy should pull out of recession, believing shipments will rebound in the final months of the year, usually the country's export season.

"Looking ahead, fundamentals of the economy remain sound overall. Monetary and fiscal conditions will continue to be supportive," Bank of Thailand Governor Prasarn Trairatvorakul told a conference on Friday.

He said there were some concerns about the possibility of continued sluggishness in private demand, and supply-side constraints in the labor market and the production sector could hold back the future potential of investment and exports.

Industrial output in August fell 3.12 percent from a year earlier led by weakness in cars and electrical appliances. The fall was more than twice the median forecast of a 1.15 percent decline. Output fell in July by a revised 4.9 percent.

Capacity utilisation dropped to 63.45 percent in August from 64.54 percent in July, according to the Industry Ministry.

The patchy economic outlook may mean the central bank will keep interest rates low and take supportive steps to help the economy.

Pimonwan at Kasikorn Research Center forecast growth of 3.7 percent for 2013 and that interest rates will be on hold for the rest of the year.

"We expect third-quarter GDP to be positive on the quarter and growth of 4-5 percent on the year," she added.

The finance ministry is expected to trim its 2013 GDP growth estimate from 4.5 percent made in June, which was cut from an earlier 5.3 percent, at a news conference on Friday afternoon.

On Thursday, Thailand's surprisingly strong exports added to growing evidence that Asian exporters are starting to reap gains from stronger growth in the United States, the euro zone and Japan, but analysts warned of continuing downside risks.

Widespread flooding around industrial parks in Thailand from storms have threatened to cause production disruptions and government officials have also said factories are facing a shortage of labour.

(Additioanl reporting by Boontiwa Wichakul; Editing by Jacqueline Wong)

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