UPDATE 1-Thailand says economy may contract in Q1 as political crisis takes toll

toll@ (Adds details, economists' comments)

* Protracted political unrest hits confidence, consumption, investment

* Feb private consumption index down 1.2 pct m/m, investment down 1.9 pct m/m

* Factory output down 4.4 pct in Feb y/y

* C/A surplus $5.07 bln in Feb vs $0.22 bln surplus in Jan

BANGKOK, March 31 (Reuters) - Thailand's economy is expected to contract in the first quarter after consumption and investment fell, the central bank said on Monday, reflecting how prolonged political unrest is deepening the toll on Southeast Asia's second-largest economy.

Thailand has endured months of political turbulence as protesters seek to topple Prime Minister Yingluck Shinawatra. The unrest is inflicting more damage to a country already grappling with slowing growth and outflows of capital from it fragile financial markets.

Yingluck on Monday showed up to defend herself against charges linked to a ruinous government rice pledging scheme that could lead to her removal from office.

The Bank of Thailand's private consumption index dropped 1.2 percent in February from January and 2.5 percent from a year earlier. Its private investment index was 1.9 percent lower on the month and was down 7.7 percent on the year.

Mathee Supapongse, senior director with the central bank, told a news conference that growth could contract in the first quarter from the fourth but might rebound in the second quarter. He expects tourism to pick up if there is no violence from street protests and exports improve.

"Overall economic activities in February 2014 softened further from the previous month owing to prolonged political protests. Households and businesses continued to hold back spending, while imports and manufacturing production contracted," the Bank of Thailand said in a statement.

It said tourism was further affected by the protests although exports picked up helped by improving global demand.

Thailand posted a much bigger current account surplus in February of $5.07 billion, compared with a surplus of $0.22 billion in January. The central bank said exports in February rose 2.2 percent from a year earlier, slightly lower than that of the Commerce Ministry.

The fresh set of indicators on Monday add to concerns that consumption will not be able to counter weak exports. Customs data last week showed plunging imports -- a signal that Thai exporters will struggle to benefit from any improvement in global demand. Many imported materials are used as inputs in goods made for exports.

The bleak outlook suggests the central bank's monetary policy committee will focus on protecting growth when it meets on April 23.

On March 12, it voted 4-3 to cut the policy interest rate by a quarter of a point to 2.0 percent, the level last seen in December 2010, to revive growth and confidence hurt by the turmoil.

"All these numbers (government forecasts) are starting to look on the high side given the growing risks of a protracted political gridlock following the constitutional court's decision to annul the February general election," said Krystal Tan, economist with Capital Economics in Singapore.

"If a fully functional government is not in place by the third quarter, growth might even struggle to exceed 2 percent."


Anti-government protests began in Bangkok in November. The central bank's original projection for growth this year, made at the start of 2013, was 4.8 percent.

After a Feb. 2 general election was disrupted by protesters trying to remove the prime minister and later annulled by a court, with Yingluck declaring a state of emergency, new forecasts sharply lowered the country's growth outlook.

The central bank cut its 2014 economic growth estimate to 2.7 percent from January's forecast of 3 percent, suggesting it has room to keep monetary policy easy to help the economy cope with the political crisis. Growth in 2013 was 2.9 percent.

Thailand is a regional production and export base for global car manufacturers and a major maker of hard disk drives. Thai factory output data tracks exports as industrial goods account for about 65 percent of total exports, which are equal to more than 60 percent of gross domestic product.

At factories, capacity utilisation fell to 59.2 percent in February from 62.1 percent in January.

The turmoil has not affected operation of plants or ports, but has hit domestic demand and consumer confidence, which dived to a 12-year low last month.

Siam Cement PCL, Thailand's largest industrial conglomerate, said last week domestic cement demand could grow just 2-3 percent this year, from 7 percent last year.

But "if political crisis is prolonged, Thai cement demand is likely to be negative," Chief Executive Kan Trakulhoon said.

(Additioanl reporting by Pairat Temphairojana; Editing by Jacqueline Wong)