Thai investment contracted 1.4 per cent year-on-year in the first quarter – its worst performance since 2001 – as political and policy turbulence weighed on investor and consumer sentiment, figures from the state planning agency showed on Monday.
But overall, the National Economic and Social Development Board said the economy grew 4.3 per cent year-on-year in the quarter, in which exports increased by 6.5 per cent.
The strong export performance, coupled with hopes for eased political tensions following last week’s dissolution of the Thai Rak Thai party by a military tribunal, helped drive the stock market up 2.2 per cent following a similar rally on Friday.
The planning agency pared its growth forecast for the year to 4.5 per cent from 5 per cent, citing weakness in domestic demand and private investment.
Domestic consumption increased by 1.3 per cent year-on-year in the first quarter, its lowest rate of growth since early 1999, amid doubts about the prospects for the restoration of democracy and uncertainty about economic policy direction following the military coup in which Thaksin Shinawatra, the former prime minister, was ousted last September.
While the current military-installed administration has pledged to hold fresh elections in December, analysts say they do not expect a strong domestic economic pick-up until the nature of the next government is more apparent.
Sriyan Pietersz, head of research at JPMorgan, said: “There is confusion over what is happening in politics, when elections will be held, and there is no clear direction on policy.
“Until we have greater clarity about the date on which the election will be held and how the next government will come out, domestic confidence isn’t going to pick up.”
Analysts say Thailand could finally see a sharp revival in investment – if and when the political situation settles down, as the country retains a strong appeal as an investment destination for many foreign companies.
Ian Gisbourne, head of research for Phatra Securities, said stock market investors were gambling on strong corporate earnings growth next year after nearly two years of uncertainty and subdued growth.
“People are looking beyond this year,” he said. “They are buying 2008 growth, not 2007. The Thai market has been such a laggard. With the hope of easing political tensions, the markets’ low valuation, people are seduced.”