Thailand, Southeast Asia’s sunny tourist hub and economic powerhouse, is slowing down. Official statistics released on Monday show that the kingdom’s economy grew only 5.3% in the first quarter of 2013 compared with the same period last year, below the 6% expected by analysts.
The new figures prompted Thai finance minister Kittiratt Na Ranong to restate his call for a cut in interest rates, which the central bank has been resisting. Exports have been flagging, which Kittiratt blames on the baht’s 16-year high against the dollar.
The latest figures show that the economy contracted 2.2% compared to the fourth quarter of 2012, but this is misleading. Devastating floods in 2011 and the populist policies of Prime Minister Yingluck Shinawatra, such as a first-time car buyer subsidy, artificially boosted growth in the fourth quarter, which was the highest since records began in 1994. A controversial rice subsidy has also pushed down exports, and weak demand from developed markets like Europe is taking a toll.
There is certainly no reason to panic quite yet. Massive infrastructure spending plans, a booming stock market and a flood of inbound Japanese yen means that Thailand’s economy is likely to be resilient. But if the slowdown continues or gets worse, the central bank will be under increasing pressure to take action.