(Bloomberg) -- A spreading drought has emerged as a new risk for Thailand's cooling economy in addition to domestic political tension and slower exports.
The country's hot and dry season is more acute than expected amid a possible El-Nino weather event, leaving just over a quarter of top reservoirs with low water levels. Such conditions threaten to sap agriculture, which accounts for about 9 percent of the Thai economy and a third of total employment.
"Prolonged dry weather may lead to lower farm output, which will hurt private consumption," said Tim Leelahaphan, a Standard Chartered Bank economist in Bangkok. "There are signs drought this year may be the worst in many years."
Southeast Asia's second-largest economy already faces an export slowdown and souring confidence after March's disputed and inconclusive election, which followed almost five years of military rule. The challenges may curb the central bank's scope to add to a December interest-rate hike as it strives to temper frailties in the financial sector.
Click to read how wildfires caused by dry conditions led to toxic air pollution
The Bank of Thailand expects gross domestic product growth to slow modestly this year to 3.8 percent from 4.1 percent in 2018. Rising fresh food prices -- blamed on the dry weather -- edged inflation back into the central bank's 1 percent to 4 percent target last month for the first time since October.
Pimchanok Vonkorpon, the Commerce Ministry official in charge of releasing the inflation data, has described the drought situation as "quite serious." Inflation accelerated to 1.24 percent in March compared with a year earlier.
The ministry expects lower rice exports in 2019 compared with last year, while the Thai Sugar Millers Corp. forecasts reduced cane output. The weather agency predicts one of the warmest years on record.
For now, the area badly affected by drought remains contained, limiting the economic impact, but the situation has to be monitored, said Duangrat Prajaksilpthai, an economist at TMB Bank Pcl in Bangkok.
So far four of 77 provinces have been declared disaster areas because of drought. Junta leader Prayuth Chan-Ocha ordered officials to prepare crisis-management plans. He remains the head of the government as official election results have yet to be released.
To contact the reporters on this story: Siraphob Thanthong-Knight in Bangkok at rthanthongkn@bloomberg.net;Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net
To contact the editors responsible for this story: Sunil Jagtiani at sjagtiani@bloomberg.net, Margo Towie
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