Thai Output Rises a Sixth Month as Economy Recovers (Update2)

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March 31 (Bloomberg) -- Thailand’s industrial production rose for a sixth straight month in February, confirming the nation’s economic recovery and putting pressure on the central bank to raise interest rates.

The Bank of Thailand said last week it will start to “normalize” the benchmark interest rate as the economic rebound reduces the need for “extra low” borrowing costs. The recovery is benefiting companies including Bangkok Dusit Medical Services Pcl. The nation’s largest private hospital operator plans to double investment this year as revenue accelerates.

“Manufacturing growth remains high, correlating with robust exports,” said Usara Wilaipich, a Bangkok-based economist at Standard Chartered Plc. “But the growth may moderate soon as exports lose momentum following the completion of global restocking and China’s tightening monetary policies.”

China has twice ordered banks to set aside more deposits as reserves this year to cool a record credit expansion and avert asset bubbles in the world’s third-largest economy. Chinese demand has helped lift Asian exports amid faltering orders from the U.S. and Europe.

Rate Decision

Thailand’s central bank this month kept its policy rate at 1.25 percent, the lowest level since July 2004. The Finance Ministry on March 29 raised its economic growth forecast for this year to as much as 5 percent. The $261 billion economy contracted 2.3 percent in 2009, the first decline since 1998.

“The trend for manufacturing is still good, especially high-tech products,” Bank of Thailand Senior Director Suchart Sakkankosone said today. “Capacity utilization has improved. Investment has also improved steadily” and will soon reach pre- crisis levels if the trend continues, the director said.

Thailand’s exports, which are equivalent to about 60 percent of the economy, increased 23.5 percent in February from a year earlier, the central bank said today. Shipments gained 31.4 percent in January, the bank said last month.

Imports climbed 80.8 percent last month after a 50.1 percent jump reported earlier for January. Thailand had a trade surplus of $452 million in February, compared with a $591 million surplus the previous month.

Sentiment Improves

An index of business sentiment rose to 51.3 last month, the central bank said.

“Concerns on political instability have increased, while concerns on economic uncertainties eased,” Suchart said.

Anti-government protesters have roamed Bangkok’s streets since March 12 demanding the government dissolve parliament and call fresh elections. Tensions increased last weekend after red- shirted demonstrators confronted soldiers and grenades exploded at several locations.

“It’s very difficult to evaluate the impact of political uncertainty,” Suchart said. “If the parliament is dissolved, it may obstruct public investment and the budget for the next fiscal year. But it may also have a positive impact” by clearing uncertainties and bringing back confidence, the director said.

The current-account surplus narrowed to $1.52 billion in February from $2 billion a month earlier. The measure comprises the difference between exports and imports of goods and services, investment income and remittances. Trade makes up about 70 percent of the current account, and tourism contributes most of the service industry’s 30 percent component.

Tourist arrivals surged 40.6 percent from a year earlier to 1.6 million last month.

Thai Output Rises a Sixth Month as Economy Recovers (Update2) - BusinessWeek