Exports are forecast for a deeper contraction of 1.2% this year, attributed to the global economic slowdown and the banking debacle in the US and Europe, according to Kasikorn Research Center (KResearch).
The centre downgraded its export outlook for 2023 from a previous contraction of 0.5%, citing the US economy's slower growth and the ongoing banking crisis in the US and Europe as major factors.
"A technical recession is possible in the US in the second quarter, while external risks, lower demand from trading partners and falling prices of shipped goods will significantly impact export performance this year," said Nattaporn Triratanasirikul, deputy manager of KResearch.
For 2023, Thailand's GDP growth would be supported by tourism, with the research house upgrading its foreign arrivals forecast from 25.5 million to 28.5 million.
In this scenario, KResearch maintained its economic growth forecast at 3.7% this year.
Given stubborn US inflation and a troubled banking sector, the US Federal Reserve decided to raise its policy rate by a quarter point on Wednesday, as the market expected.
The terminal fed funds rate this year is expected to be 5.25% in the middle of the year, while the Fed has not signalled a rate cut is likely in 2023, said Thanyalak Vacharachaisurapol, another deputy manager of KResearch.
The Bank of Thailand is expected to raise its policy rate two times by 25 basis points each this year, bringing the terminal rate to 2% by the middle of the year, up from 1.50% now.
The direction of the fed funds rate would impact capital flow and foreign exchange rates globally, compared with the greenback, said Ms Thanyalak.
She said the baht is expected to move around 34 per US dollar, with a volatility rate of 11% in the first quarter this year.
Baht volatility is expected to slow in the second quarter, in line with the fed funds rate, said Ms Thanyalak.
In the second half of the year, the local currency is anticipated to strengthen against the dollar, supported by tourism income, said KResearch.
The baht is expected to strengthen to 33.5 baht per dollar by the end of this year, according to the research house.