BANGKOK—The Thai economy contracted in the second quarter as supply disruptions in the auto industry caused by the natural disasters in Japan took a toll on Southeast Asia's second-largest economy.
The country's gross domestic product shrank 0.2% from the January-March quarter, said Arkhom Termpittayapaisith, secretary-general of the National Economic and Social Development Board, the government's economic planning agency.
GDP rose 2.6% in the second quarter from a year earlier. In the first quarter, Thailand's GDP expanded 2% on-quarter and 3.2% on-year—revised up from an earlier estimate of 3%.
The agency revised down slightly its forecast for full-year economic growth to 3.5%-4% from 3.5%-4.5% previously.
The median forecast of seven economists polled by Dow Jones Newswires was for GDP to have expanded 0.4% in the second quarter from the first quarter, and 3.55% from a year earlier. They forecast the economy will expand 4.2% this year.
If positive momentum continues as expected, the economy should grow by 5% in the second half of this year, compared with a 2.9% growth in the first half, and result in a full-year growth of 4%, said Mr. Arkhom.
The earthquake and tsunami that hit Japan in March disrupted the supply of components, dragging on the production of vehicles, one of Thailand's key export goods. However, as many Japanese auto makers and auto parts companies resumed their operations, the situation has largely been resolved and pent-up orders will likely push production up in the second half.
Exports expanded by 19.2% in the second quarter, much slower than the 27.4% growth in the first quarter. Mr. Arkhom said exports this year should rise 16.5%, with imports climbing 21.3%. He also said the economy should grow by 5% in the second half of this year.
TMB Bank Vice President Naris Sathapholdeja said while the on-quarter GDP growth was a surprise, it shouldn't prevent the Bank of Thailand from raising its policy rate by 0.25 percentage point to 3.5% at its meeting Wednesday.
"The central bank may consider the weak GDP growth as temporary, as the auto sector's production has already returned to normalcy so they're likely to raise the rate," he said.
He said that the central bank may, however, pause its tightening cycle in the remaining two meetings this year following pressure from the new government, which is focused on economic growth.
However, given mounting worries over a global recession amid severe economic problems in advanced economies and Thailand's weaker-than-expected growth in the second quarter, it wouldn't be a surprise to see the bank stand pat on rates at the upcoming meeting.
While not making an explicit call for a neutral rate decision, Mr. Arkhom said he understood the central bank's role to anchor inflation but noted that any monetary policy decision should also weigh the effects on investment and domestic demand.
The agency raised its 2011 inflation forecast to 3.6%-4% from 3%-3.5% and forecast a trade surplus this year of $8 billion—-down from $10.4 billion—and a current account surplus of $8.8 billion, down from $11.2 billion.
--Oranan Paweewun contributed to this article.
Write to Phisanu Phromchanya at phisanu.phromchanya@dowjones.com
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