In the fourth quarter of 2023, InnovestX Securities expects the global economy to slow down significantly, with three main themes:
Synchronised slowdown: The global economy in the third quarter slowed as we expected. Preliminary purchasing managers' index (PMI) figures for large economies around the world signal a concerted slowdown continuing.
Higher for longer: We expect the US policy interest rate to remain constant at the current level of 5.4% until the end of the year. The decision at last week's Federal Open Market Committee meeting to hold the federal funds rate at the current level, with some members projecting the rate to stay at that level for the rest of the year, is a case in point.
US and the rest: We project a chasm between the US, where the economy is still growing, and other economies, especially Europe and China, where growth will slow significantly.
Looking forward, even though the US economy has expanded by more than than expected, it will slow down in the fourth quarter and enter a recession in early 2024. But Europe is already at risk of a recession because of the continued tightening of monetary policy.
We are maintaining our 2023 growth estimate for Japan, and revising our growth forecast for China down to 5%. In 2024, we believe Japan will be stable, while Chinese economic growth will decelerate to around 4.7%.
While the Chinese economy in the short term looks like it has reached a cyclical low point, in the long run there is a risk of a "deflationary cycle". This leads us to expect a sharp slowing in the world economy in the fourth quarter, while in 2024 some countries may enter recession.
The Thai economy is showing signs of a material slowdown, but prospects are hopeful in light of political clarity after months of post-election uncertainty as well as the likelihood of stimulus policies.
The Thai economic outlook is as we and the National Economic and Social Development Commission expected, though we project Thai economic growth in 2024 will expand from this year because of increased political stability.
However, we believe the government faces imminent risk from difficult and challenging economic policy implementation amid an increasingly risky global economy. We still expect the government to push through its announced economic policies, especially the 10,000-baht digital wallet.
Our preliminary calculations indicate the economy will grow by an additional 1% next year, after we incorporate the government's announced policies such as the digital wallet, increases in the minimum wage and monthly salary of bachelor's degree holders, suspension of debt and interest payments for some groups, and energy price reductions.
We expect the Thai economy in 2024 to expand by 4.1%, an improvement from our 2023 estimate of 2.7%, based on four factors:
- Economic stimulus measures, especially the digital wallet, which should revive consumption;
- Efficient public administration, especially accelerating the disbursement of government capital budget funds;
- Increased confidence, which will generate more private investment; and
- Increased inflation and a weak baht, attributed to the implementation of the digital wallet policy.
We believe inflation arising from the digital wallet policy will cause the Bank of Thailand to increase its benchmark interest rate to 2.75% from 2.25% currently. We expect the baht to average 35 per dollar this year and 36 to the greenback in 2024, while foreign arrivals are projected at 28 million this year, rising to 35 million in 2024.
For investment, we think foreign funds will start flowing back to the Thai market based on an improving outlook for China; the completion of downgraded credit ratings, earnings and GDP; peaking US interest rates; and domestic economic and tourism stimulus.
We still predict market uncertainty to remain high. We see a chance to add to stocks with high recovery visibility and those that will gain from stimulus. Our top picks in the fourth quarter are Airports of Thailand (AOT), Bangkok Chain Hospital (BCH), Central Retail Corp (CRC), KCE Electronics (KCE) and Krungthai Bank (KTB).
Good luck to all investors.
Dr Piyasak Manason heads the Wealth Research Department at InnovestX Securities Co Ltd