Fitch Solutions Macro Research, a unit of Fitch Group, has lowered its economic growth outlook for Thailand in 2019 and 2020 because of weak domestic demand, from 3% down to 2.8% in 2019 and 3.6% down to 3.5% in 2020.
Real GDP growth in the second quarter this year decreased to 2.3% year-on-year, down from 2.8% in the first quarter, the weakest pace of growth since September 2014.
Export growth averaged -6.1% year-on-year in the first half of 2019 because of lower external demand. Growth also suffered from soft domestic consumption and investment activity.
Fitch predicts the government's planned monetary and fiscal stimulus to provide some support for growth, but it will be unlikely to continue through 2020 and fail to offset the economic slowdown in the second half this year, caused mainly by external factors.
Thailand's economy will continue to feel the negative impact of weakening demand overseas from the combination of trade tensions, slowing global growth and a stronger baht.
The year-on-year decrease in exports is unlikely to reverse sharply over the coming quarters, Fitch said, as external factors are unlikely to change. The US-China trade war does not appear to be ending any time soon, with US President Donald Trump announcing further tariffs from September and the US treasury labelling China a "currency manipulator" in August.
The baht's strength this year has also hurt Thailand's tourism industry and export competitiveness, which will continue to impact exports somewhat over the coming quarters, Fitch said. The baht has gained 4.5% against the dollar as of Aug 21, and the exchange value is at its strongest point since 2013.
With the Bank of Thailand's rate cut this month having little effect on the baht, currency strength will continue to negatively impact exports, said the research house. The overall weakness in external demand will continue to feed through to subdued private investment over the coming quarters.
According to Fitch, one of the main factors affecting growth projections is the moderation in household consumption growth, with risks of a sharper slowdown in domestic consumption dragging growth even lower.
Household consumption growth averaged 4.7% year-on-year in the first half of 2019, compared with 4.6% in 2018. But consumer sentiment has been declining, with the confidence index falling to 75, having averaged 81.1 in the first quarter of 2018, and household consumption growth weakening to 4.4% year-on-year in the second quarter this year from 4.9% in the first quarter.
Consumer loan growth also dipped in the second quarter this year, down to 9.3% year-on-year from 10.1% in the first quarter, reflecting growing uncertainty for consumers.
Household debt remains elevated in Thailand, at 78.7% of GDP in the first quarter of 2019. Rising unemployment could also aggravate this trend, affecting headline growth.