The economic outlook in a year of uncertainty

The economic outlook in a year of uncertainty

Next year will be an uncertain one for both the global and Thai economies, especially concerning three areas: economic recession, geopolitical problems and government economic measures.


In terms of the global economic outlook in 2024, our view is that developed economies will enter a recession in the first half of the year, leading the Federal Reserve to reduce interest rates by one percentage point during that period.

The Chinese economy is expected to slow gradually with support from monetary policy relaxation. However, structural problems will persist, especially deflation. Global economic risks will increase from wars and elections.

Our view is the US economy has three weak points. In terms of consumption, excess savings are exhausted, credit card debt is increasing amid record-high interest rates, and wage growth has slowed significantly, especially in the service sector.

For the banking and private sectors, research by financial economists indicates 10% of US bank assets have been lost by rising interest rates. If there is a run on banks for 50% of their deposits, more than 190 banks would go bankrupt, while the bankruptcies of small companies would increase by more than 25%.

In the fiscal sector, the average US (and global) public debt is at roughly 120% of GDP, while the US has a budget deficit of 7.5% of GDP. Higher interest rates will increase government interest expenses, raising the risk of a fiscal crisis.

In terms of China's economic outlook next year, our view is the Chinese economy has improved more than expected because of monetary policy relaxation, including allowing commercial banks to buy non-performing local government debt. China's credit intensity (the growth rate of credit compared with economic growth) expanded at the same level as in 2020, during the pandemic.

Looking ahead, there is still risk of deflation, with China's GDP deflator shrinking for two consecutive quarters as inflation returns to zero.

In terms of geopolitical risk, we predict the conflict in the Middle East will remain confined to Israel and last 2-3 months longer, leading a higher oil price (a war premium) of US$3-5 in the short term. There is a 70% likelihood this will not have a material effect on the economy. However, if the conflict spreads to a proxy war or war with Iran, the world will see stagflation and an economic recession.


For the Thai economic outlook in 2024, we divided our economic projection into two scenarios related to the digital wallet scheme. If the measure passes as outlined by the prime minister on Nov 10, the Thai economy will expand by 4.1% because the stimulus will increase consumption, while efficient government budget management and higher business confidence will lead to greater private investment.

On the downside, it would raise inflation and weaken the baht, leading the Bank of Thailand to bump up interest rates from the current level of 2.5%.

If the measure does not pass, the Thai economy will expand by only 3.2% as consumption narrows from high household debt and tight interest rates, while private investment weakens from a slowing global economy, derailing exports, and a stagnant domestic economy. Government spending will be affected by a delayed budget and disbursement that is lower than the target, while exports slip amid a static global economy.

On the flip side, the central bank would maintain interest rates, helping the Thai economy to a certain extent.


In 2024, we are keeping an eye on six economic factors that will be key for the Thai economy. The first is industrial production, which has been shrinking for more than a year.

Second is the amount of money in the system, which started to decline after the central bank raised interest rates, combined with capital outflows from the money and capital markets. The monetary supply has lost roughly 120 billion baht from its peak.

Third, this decline in money is consistent with the amount of credit in the system, which decreased after economic risks increased. The outstanding loan balance has fallen by 430 billion baht.

Fourth, private investment is still shrinking in line with industrial production. We need to monitor whether exports are improving, and if so, will this lead to industrial production rising to full capacity, stimulating more private sector investment?

Fifth, farm income is at risk as El Niño weather conditions could hinder yields and continue to drain inventories.

Finally, foreign direct investment (FDI) has been shrinking for a decade at a rate of about 6% per year. For the last two years, Thai FDI has plunged by more than 47%, from $15 billion in 2021 to an estimated $8 billion in 2023. The prime minister is working to lure back more foreign investment and the success of his efforts needs to be assessed.

Investment recommendations can be tricky in such conditions. We believe the global investment environment in 2024 is likely to be defined by slowing growth, interest rate cuts, a weak dollar, earnings recoveries by Asian firms, and geopolitical uncertainty.

These trends point to emerging markets (EMs), value outperformance and potential volatility. We expect GDP growth of EMs to recover in 2024 based on hopes for China's stimulus programmes. The end of the US rate hike cycle, a weaker dollar, China's stimulus and strong earnings growth are key drivers for an EM performance reversal. We view China, Vietnam and Thailand as attractive based on risk and rewards.

We believe the continued tech earnings recovery, the Asean economy bottoming out, the end of the clearing out inventory and the likelihood of easing policy from central banks could offset the negative sentiment from the risk of a US recession and Taiwan election results.

The market is expected to increase, though volatility will remain high. Within a complex macro backdrop, our strategy is to focus on stocks experiencing earnings improvements based on earnings quality and recovery. While market uncertainty is high, we see an opportunity to add to stocks with a strong balance sheet, high recovery visibility and the chance to benefit from stimulus schemes and a slow destocking. Our top picks for the first quarter of 2024 are BBL, CPALL, GULF, KCE and SCC.

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