Thailand's economy may not easily pull out of recession, data on factory output suggests, even as a retreat by foreign investors puts further pressure on its financial markets.
The fourth straight month of contraction in manufacturing output has raised fresh concerns that a slew of economic data this week will show more economic slippage, including a widening current account deficit as exports and foreign investments slow.
The central bank's data for July on Friday is expected to show consumption and investment remain subdued and the current account is in deficit again after a $3.8 billion gap in January-June.
Thailand's economy slipped into a mild recession in the second quarter and is grappling with faltering exports as investors position for the U.S. Federal Reserve to taper monetary stimulus, which has hit emerging Asia hard.
Pimonwan Mahujchariyawong, an economist at Kasikorn Research Center, said a weak baht should help boost exports and that the current account deficit should be around $3 billion this year.
The baht was slightly weaker at 32.25 per dollar, taking its losses so far this year to 5 percent. Thai stocks have slipped into bear market territory, falling 2.6 percent on Wednesday and tumbling over 20 percent from their May highs.
ING forecast in a report a current account deficit of $5 billion in 2013, which would be the highest since 2005, and "the widening current account deficit makes Thai financial assets vulnerable to taper talk-driven turbulence."
Industrial output in July dropped 4.54 percent from a year earlier, hit by weak electronics and autos. It was worse than the median forecast of a 2.3 percent fall in a Reuters poll, and against a 3.54 percent decline in June.
On a monthly basis, unadjusted output fell 3.32 percent in July after a 0.89 percent rise in June.
"Output data has tracked weak export numbers lower. With no immediate signs of rebound on the external front, net exports are likely to drag on growth for 3Q," said Eugene Leow, an economist with DBS Bank in Singapore.
"Momentum in the domestic economy has waned and elevated household debt could drag on consumption. Sequential GDP growth in 3Q is likely to be anaemic," he added.
Thailand is a regional hub and export base for top global car makers and is the world's number two producer of computer hard disk drives.
However, Sarun Sunansathaporn, an economist at Tisco Securities, said: "We think output data may not tell the whole story as the service sector is still good. Exports in Q3 are likely to be better, so we expect Q3 GDP growth of 3.9 percent on the quarter and 4.6 percent on the year."
Southeast Asia's second-largest economy shrank on a quarterly basis in each of the first two quarters on weakening domestic demand and sluggish exports.
The weak economic outlook may mean the central bank will keep interest rates low and take supportive policy steps, economists said.
However, Thailand's central bank said on Wednesday it was not worried about capital outflows because of the country's high foreign reserves and that the baht was still moving in line with the currencies of trade partners. It reiterated it would act if the currency moved too fast.