UPDATE 2-Thailand cuts GDP outlook as COVID-19 cases slow recovery

* Q1 GDP -2.6% y/y vs -3.3% in Reuters poll

* Q1 GDP +0.2% q/q sa vs -0.8% in poll

* Agency cuts 2021 GDP growth outlook to 1.5-2.5% from 2.5-3.5%

* 2021 exports seen up 10.3% vs +5.8% seen earlier (Adds detail, analysts’ comments)

BANGKOK, May 17 (Reuters) - Thailand’s economy improved in the first quarter helped by stronger manufacturing, investment and exports, but a third wave of COVID-19 infections has clouded the outlook for the tourism-dependent Southeast Asian country.

The government downgraded its 2021 economic growth forecast to 1.5%-2.5% as the outbreaks crimped domestic activity amid Thailand’s slow vaccine rollout as it was preparing to reopen more broadly to foreign visitors. It had previously forecast growth of 2.5-3.2%, after the economy shrank 6.1% last year, the deepest slump in more than two decades.

Southeast Asia’s second-largest economy contracted 2.6% in the March quarter from a year earlier, National Economic and Social Development Council data showed on Monday, versus a forecast 3.3% drop in a Reuters poll.

On a quarterly basis, gross domestic product (GDP) rose a seasonally adjusted 0.2% in the first quarter, beating the 0.8% drop forecast by economists.

In the final quarter of 2020, the economy shrank 4.2% from a year earlier but expanded a revised 1.1% on the quarter.

“Output is unlikely to hold up this quarter. We expect the economy to shrink sharply as a further surge in new COVID-19 cases pushes the country back into lockdown,” Capital Economics said.

In the March quarter, manufacturing rose for the first time in seven quarters by 0.7% from a year earlier, with total investment up 7.3% and exports up 5.3%. But accommodation and food service activities tumbled 35% following a 99.7% slump in foreign tourist numbers.

The latest outbreak, which started in April, has accounted for over two thirds of Thailand’s total infections. On Monday, the country reported a daily record of 9,635 new cases, including more than 6,800 infections among prisoners.

Increased exports, a key growth driver, and government support measures, have lent some support, however.

The NESDC now expects exports to rise 10.3% this year, rather than increase 5.8%.

But it forecasts just half a million foreign tourists this year, down from an earlier forecast of 3.2 million arrivals. That compared with nearly 40 million foreign visitors in 2019.

The government has supported the economy with various stimulus measures and recently a relief package worth 255 billion baht to help people cope with the outbreak.

“There is still a need for monetary and fiscal policy to continue to provide the necessary support until herd immunity via vaccination is attained,” said Kobsidthi Silpachai, head of capital markets research of Kasikornbank. ($1 = 31.36 baht) (Reporting by Orathai Sriring, Kitiphong Thaichareon, Satawasin Staporncharnchai Editing by Jacqueline Wong)