21 February 2011 Last updated at 11:21

Thai economy emerges from recession as exports pick up

Inflation has hurt consumers' spending power

Thailand's economy has emerged from recession, the latest figures show.

Gross domestic product grew at a quarterly rate of 1.2% in the last three months of 2010, the National Economic and Social Development Board said.

Thailand's economy had contracted by 0.6% during the second quarter and by 0.3% in the third, putting it into a technical recession.

The rebound was helped by a pick up in exports.

Rate pressures

Analysts said that the improving growth figures, coupled with higher food and commodities prices, may put further pressure on the central bank to raise its interest rates.

The Bank of Thailand raised its main cost of borrowing by a quarter of a percentage point to 2.25% last month to curb price rises.

Economists expect the bank to further raise interest rates at its next meeting in March.

The economic expansion in the fourth quarter helped Thailand emerge from a technical recession," said Usara Wilaipich, an economist at Standard Chartered Bank.

"This development should support continuing policy rate normalisation by the central bank, which is expected to hike rates by 25 basis points to 2.5%,"

Exports rebound

Thailand is Southeast Asia's second-largest economy and is heavily dependent on exports.

After a tricky first nine months of the year, demand has improved in some of Thailand's main markets as their economies have recovered.

Net exports of goods and services increased by 6.7% in the final three months of 2010, compared with a fall of 14.5% during the previous quarter, the National Economic and Social Development Board (NESD) said.

For the full year, exports from Thailand grew by 28.1%.

The good news for the Thai economy is that export growth has continued this year, with foreign sales up 22.3% in January from the same month a year earlier.

The export figures echoed a trend that analysts had identified in the GDP data.

"External demand remained good and we expect the upside for exports to come from developed countries, especially the US, whose economy is showing clear momentum," said Thammarat Kittisiripat, an economist at Tisco Securities.

Slowing Growth

However, it is not all good news and during the current year Thailand is not expected to match the 7.8% rate of growth seen in 2010.

This year, the economy is expected to grow at between 3% and 5%, the Bank of Thailand forecast.

A number of factors will contribute to the slowdown, with analysts identifying inflation and higher interest rates as their main concern.

They also said that there may be weaker demand in China and added that 2011's figures would be lower as they were being compared to a higher base level.

"The economies of many countries are still growing well and that should continue to support exports in the first quarter," said Pimonwan Mahujchariyawong, an economist at Kasikor Research.

"But as many central banks are focusing on tackling rising inflation, exports could be affected going forward."