RTTNews - The Thai economy contracted significantly in the first quarter, dragging the economy into a recession.

Monday, the National Economic and Social Development Board said the economy contracted dramatically by 7.1% year-on-year in the first quarter on declining exports and imports. The decrease was severe than the 4.2% decline seen in the fourth quarter.

However, gross domestic product was down 1.9% on a seasonally adjusted basis, much milder than the 6.1% contraction in the fourth quarter. Economists were expecting a 1.7% decline. By shrinking consecutively for the second straight quarter, the Thai economy entered recession in the first three months of the year.

The annual decline in GDP was mainly due to an 8.1% decrease in non-agricultural sector led by manufacturing, wholesale and retail trade, construction, transportation, and hotels and restaurants. Agricultural sector grew 3.5% far better than a rise of 1.6% in the fourth quarter.

Hit by the ongoing global economic downturn, manufacturing shrank 14.9%. Mining and stone quarrying fell 2%, while output in electricity, water supply and gas separation was down 2.7%. Despite economic stimulus measures, construction slipped 7.9%, which was the fourth straight quarter of decline. Transportation and communication decreased 6.5% due to economic downturn and tourist contraction.

On the expenditure side, household spending shrank 2.6%, the first drop for a decade due to unemployment growth. Additionally, political instability adversely influenced consumer confidence along with slowing down of farm income and falling prices of major crops. Meanwhile, government spending rose 2.8% versus an 11% rise in the previous quarter as the disbursement rate of budget for purchase of goods and services expanded only by 0.2%.

Gross fixed capital formation consecutively decreased for two quarters with a contraction of 15.8% in this quarter deepening from a 3.3% fall in previous three months.

Due to the depleting value of stock of agricultural goods and manufacturing goods, change in inventories declined in the first quarter.

On falling demand, exports slid 17.9% versus an 8.9% reduction in the fourth quarter. At the same time, merchandised imports fell 36.1% compared to a 0.1% increase in previous quarter on account of lower imports in all categories. The trade balance showed a surplus of THB 366.4 billion, reversing a deficit of THB 3.5 billion in the prior quarter.

The NESDB forecasts the economy to shrink in the range of 2.5% to 3.5% this year, far worse than its earlier estimate of zero to 1% contraction.

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