Consumer spending in Thailand will post solid growth over 2022, with real household spending (based on 2010 prices) projected to grow by 4.6% year-on-year.
This is a slowdown from the 7% year-on-year growth estimated for 2022, when growth was boosted by low base effects from the 11.7% year-on-year contraction in 2020 and flat growth of 0.3% in 2021.
We forecast real household spending to rise to 8.5 trillion baht over 2022.
Consumer spending growth will come as the wider Thai economy recovers and growth figures return to a more stable and medium-term trajectory. Although inflationary forces will remain elevated this year, real income growth for Thai consumers will give households greater propensity for spending.
In January, the consumer confidence index stood at 51.7, the highest since February 2020. This uptick can be attributed to the government's tax deduction scheme, a return of tourists and an overall improved economic outlook.
On the other hand, retail sales contracted 0.4% year-on-year in December 2022 as sales of retail goods declined across the spectrum. The ongoing rise in consumer confidence bodes well for retail sales in the short term as households are likely to be more receptive to making discretionary and big-ticket purchases.
International tourism, which plays a large part in the Thai economy, continues to recover from the pandemic-induced downturn, and we forecast a 101% increase in arrivals in 2023. This surge will bode well for spending in the tourism sector and on related services, such as hotels, restaurants and cultural and recreational activities and establishments.
The unemployment rate should be stable over the year, at 1.2% of the labour force, and while inflation is expected to remain elevated, it will moderate to an average of 3.2%.
We forecast the baht to appreciate against the US dollar to 31.50, from 35.10 in 2022. This will provide a slight respite as imports become slightly cheaper.
INFLATION OUTLOOK
In many markets, inflationary pressures remain elevated and while the rate of price changes is slowing, it remains higher than central banks' targets, as well as what consumers have grown accustomed to, especially over the past decade.
If nominal wages cannot keep up with these high rates of inflation, consumers will continue to see erosion in their purchasing power. The uneven nature of price increases will mean that consumers need to increasingly allocate more of their disposable income to meeting the basic necessities.
In Thailand, consumer price inflation has been elevated, reaching 5.0% year-on-year in January, down from 5.9% in December. This figure is a softer inflationary increase since April 2022 as prices slowed.
Our country risk team forecasts inflation to moderate downwards for 2023, averaging 3.2% and ending the year at 2.9%. The risk now is that inflation remains elevated at these levels for longer than anticipated, which will accelerate the erosion of household purchasing power.
DEBT CHALLENGE
Over the course of the pandemic, household debt as a percentage of GDP in Thailand increased significantly. While household debt averaged 69.2% of GDP between 2015 and 2019, reaching a low of 68.2% in the second quarter of 2018, it surged to a peak of 91.7% by the first quarter of 2021.
Although the latest available data indicates household debt accounted for a reduced 88.9% of GDP in the second quarter of 2022, this figure remained some 28% higher than the pre-pandemic average.
As a percentage of GDP, Thai households now have the highest debt rates in the region and the 11th-highest in the world. This is a structural problem for the economy, and the government has targeted reducing the level to ensure that private consumption does not stagnate.
Higher interest rates will require households to allocate even a larger proportion of their disposable income to servicing their debt, which will weigh on consumer spending.
Supply chain issues continue, having first appeared when global economies started to reopen in 2021, with consumers demanding products they had little access to in 2020. This continues to place pressure on manufacturers, with bottlenecks and consumer goods shortages emerging, which has fed through into supply-side inflation.
The zero-Covid policy in China exacerbated this trend, causing disruptions and shutdowns of factory production and manufacturing, with a knock-on effect on the wider consumer market.
Additionally, the Russia-Ukraine conflict continues to place significant supply pressures on key commodities, especially food supplies, pushing up final market prices across a spectrum of consumer categories.
Some markets have reacted by placing their own restrictions on the export of food items, putting further pressure on global prices.
Finally, with most economies reporting an economic slowdown over 2023, we are beginning to highlight the risk that higher unemployment will have on our consumer outlook in the short term.