Thailand economy: Robust domestic demand boosts growth

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Media captionThailand's economy is "more resilient" than its Asian peers

Thailand's economy grew more than forecast in the April to June period helped by domestic consumption and continued recovery in manufacturing.

Growth was 3.3% in the second quarter, compared to the previous three months. Analysts had forecast growth of 1.7%.

Thailand has taken various measures to boost domestic demand to help recover from last year's devastating floods.

Analysts said the steps had helped offset a decline in global demand for exports.

"Thailand is one of the more resilient economies compared with its Asian peers with regards to the risk and headwinds from the US and Europe," Philip Wee of DBS bank told the BBC's Asia Business Report.

Compared with the same period last year, the economy grew by 4.2%.

Sustainable growth?

Thailand was hit by some of the worst flooding in decades late last year. This led to various factories being shut and production suspended, which in turn hit the country's exports and manufacturing sector.

The government has announced plans to spend 2tn Thai baht ($63.4bn; £40bn) on infrastructure projects in an attempt to prevent such disasters and also to boost growth.

At the same time, it has also pledged to raise minimum wages in the country.

Analysts said that while these steps were likely to contribute further to growth, Thailand needed to be careful that such measures did not increase both debt and consumer prices rapidly.

They said that if not checked, such developments may prove to be detrimental to growth.

"We have seen in other countries in Asia... if they embark on domestic demand driven growth, they have to watch for risk in terms of whether this growth is driven by twin deficits and does this lead to inflation," Mr Wee said.

"If it does, then it becomes unsustainable."