High quality global journalism requ

High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/0d1f2e06-08ad-11e3-ad07-00144feabdc0.html#ixzz2vM25GAOr

Thailand has become the latest emerging market to raise concerns over falling growth after the country slipped into a technical recession, amid weak exports and sluggish domestic demand.
The southeast Asian economy contracted 0.3 per cent in the second quarter from the first, following a 1.7 per cent decline in the first three months of the year, according to official data released on Monday.
Thailand is a major source of car, electronic and electrical appliance shipments, as well as one of the world’s biggest producers of rice, leaving it heavily exposed to sluggish global demand. Growth slowed to 2.8 per cent compared with the year-earlier quarter, and compared to 5.4 per cent during the January-March period.
More
ON THIS STORY
Indonesia A delicate succession
Thai billionaire plans infrastructure IPO
Markets Insight Indonesia faces big value chain obstacles
Thailand and Indonesia avoid US shrimp tax
ON THIS TOPIC
The Macro Sweep Australian trade surplus leaps
David Pilling Ukraine of the east
Thailand vows to ‘deal with’ protesters
Thai protesters surround PM’s office
Falling private consumption also proved to be a drag on growth, due to the expiry of a number of stimulus measures brought in to help the country recover from severe flooding in 2011.
“What this GDP report underscores is that there are pitfalls in bringing in support measures that are very temporary and that only give a short-term boost to growth,” said Su Sian Lim, economist at HSBC. “The question is whether this means the economy is deeply in trouble. I don’t think we’re there yet as the fundamentals are still in tact.”
Thailand was long one of the stars for emerging market investors. Its benchmark equity index rose more than 50 per cent from the start of 2011 to its recent peak in May. That strong appetite coincided with the country’s biggest ever initial public offering and its largest acquisition deal, raising hopes that the ghosts of the Asian financial crisis had finally been laid to rest.
However, like many other developing economies, it has been hit by a sharp reversal in sentiment sparked by concerns over future US monetary policy, and by falling growth expectations.
Since late May, when Federal Reserve chairman Ben Bernanke first mentioned the possibility of a reduction in asset purchases by the US central bank, the Thai equity market has dropped 15 per cent, leaving it almost flat this year. On Monday the SET index dropped a further 3.3 per cent following the data release.
Like some of its neighbours, Thailand has experienced an explosion of private borrowing in the years following the financial crisis. Since early 2009, Thailand’s ratio of household debt to GDP has increased from 55 per cent to 80 per cent, a rising source of worry for policy makers.
“That’s a huge jump in a very short amount of time. You have to ask if the financial system can take it,” said Ms Lim. “If you run these levels of debt but you’re not growing, that’s when it becomes a problem.”
Analysts said it was unlikely that the Bank of Thailand would opt to cut rates at its policy meeting later this week due to concerns over the rapid build up in private debt levels, and an acceptance that it would do little to lift growth while exports remained weak.
“This slowdown suggests that credit-led expansion in consumption is getting harder to come by and the impact of various forms of support, such as mandated increases in minimum wages . . . is starting to wane,” RBS economist Sanjay Mathur wrote in a note to clients.
Barclays responded to the data by cutting its annual growth forecast for Thailand from 4.5 per cent to 3.5 per cent, while the country’s own planning agency trimmed its expectations to between 3.8 per cent and 4.3 per cent.