BANGKOK, Aug 23 — Thailand’s economy unexpectedly grew in the second quarter from the first as a surge in exports offset deadly political unrest, data showed today, cementing expectations interest rates will rise further this year.

The state planning agency which compiles gross domestic product data nearly doubled its 2010 economic growth target to 7.0-7.5 per cent from 3.5-4.5 per cent predicted in May at the height of the worst political unrest in modern Thai history.

“The revision of 2010 GDP implies that the state agency is more bullish on the economy than other organisations,” said Nuchjarin Panarode, an economist at Nomura Securities.

The Bank of Thailand is widely expected to raise its benchmark policy rate by a quarter point to 1.75 per cent on Wednesday. Most economists polled by Reuters after the data said they still expected rates to rise to two per cent by the year end.

The central bank raised the rate by 25 basis points from a record low 1.25 per cent last month, the first increase since the global downturn.

Bond yields were unchanged after the data. Yields fell in early deals on bids from offshore buyers but have stabilised since then. Benchmark five year bond yields are now at 2.72 per cent, down five basis points from Friday’s close.

Six month swap rates starting six month forward were little changed and consistent with expectations that official rates will reach two per cent by the end of 2010.

Thai baht inched up 0.13 per cent to another 28-month high in early trade on rising capital inflows into Thai stocks, which added 0.32 per cent to approach a new 33-month high.

On a quarter-on-quarter basis, Southeast Asia’s second-biggest economy avoided a widely expected contraction in the quarter, growing 0.2 per cent from the first quarter.

Economists had expected the US$264 billion (RM844 billion) economy to have contracted 1.3 per cent in the second quarter from the previous quarter due to recent political violence that hurt tourism and consumption. But the political impact seems to have been limited.

“We had expected a big impact from the unrest, but tourism has recovered fast while exports remain strong,” Amphon Kitti-amphon, chief of the National Economic and Social Development Board (NESDB) told a news conference.

The annual growth of 9.1 per cent in the second quarter was also better than the eight per cent expected by economists and marked a slowdown from a torrid 12 per cent first-quarter expansion that was the strongest rate in 15 years.

However, Amphon said annual growth could slow to 4-5 per cent in the second half — probably six to seven per cent in the third quarter and one to two per cent in the fourth due to a higher base effect.

Other big Asian exporting economies are also registering strong quarterly growth. Last week, Taiwan raised its economic growth forecast for 2010, citing emerging market demand and investment by Taiwanese firms such as chipmaker TSMC and Malaysia also posted stronger-than-expected growth.

Thailand’s central bank has said inflation remained under control this year, but core inflation will probably rise next year as the economy grows and the subsidies on utilities and public transport end.

Last month, the central bank also upgraded its 2010 growth forecast sharply to 6.5-7.5 per cent, while Finance Minister Korn Chatikavanij and the International Monetary Fund both predict growth of as much as eight per cent this year, which would be the highest rate in 15 years.

Economists surveyed by Reuters last week forecast the economy would grow a median 6.9 per cent this year after shrinking 2.2 per cent in 2009. — Reuters