Recent strong U.S. data bolster the economic growth prospects which could allow the Fed to raise interest rates later this year while Japan economy expanded much more than expected in the first quarter of 2016.
Thai economy in the first quarter of 2016 expanded 3.2%, the highest rate in 3 years, from continuously robust growths in government expenditures and export of services, i.e. tourism.
Stronger-than-expected domestic demand also helped strengthening the GDP. Private consumption was largely supported by government stimulus measures. Unfortunately, low income in agricultural-related households, due to drought and low prices, remains the major hindrance in subsequent periods.
Private investment mildly expanded. Nevertheless, several indicators, such as excess production capacity and low capital goods imports, suggest not-so-good outlook. In other words, strong GDP figure in the first quarter should be interpreted with cautions.
For external sector, Thai exports in the first quarter grew by 0.8%, due to gold and other extra items. After excluding these items, exports value contracted by 4.0%yoy, showing slight recovery but still remain in negative zone. Manufacturing exports, e.g. electronics agriculture products, persistently shrank, while oil-related exports were negatively affected by subdued prices.
Given better outlook in Thai economy and inflation, which turned to positive for the first time in 15 months, policy rate is expected to be maintained at 1.50% throughout 2016. Alas, risk is largely tilted to the downside. Therefore, there is still some possibility, though significantly reduced from earlier this year, of further rate cut.