Singapore-based United Overseas Bank (UOB) is preparing to downgrade Thailand's GDP growth forecast this year to 2.4% from 2.8%, though it expects the Bank of Thailand to trim interest rates twice to 2% by year-end to prop up the economy.
Enrico Tanuwidjaja, economist and senior vice-president for global economics and market research at UOB Group, cited persistent weak domestic demand and delayed stimulus measures for the revision, although tourism and exports have recovered.
Slower loan growth and tightened credit standards amid a debt overhang should weigh on household consumption, accounting for 58% of GDP, noted the bank. Economic activity remains tepid, which should be reflected in first-quarter GDP, slated for release on May 20.
The digital wallet scheme was postponed to the fourth quarter of 2024 or possibly the first quarter of 2025, given the difficulties in securing funding, he said.
"Even though we made a downgrade, it's only for this year. The outlook for next year is unchanged at about 3%," said Mr Tanuwidjaja.
UOB anticipates the Bank of Thailand will cut interest rates twice by 0.25 percentage points each at its June and August meetings, resulting in a policy rate of 2.0% at year-end, "based on muted inflationary pressure and a subdued growth outlook," he said.
The central bank projects GDP to expand by 2.6% and 3% this year and next, with near-term challenges and uncertainties. Inflationary pressure is weak in the near term, while inflation expectations remain well-anchored, providing room for the bank to cut rates, said Mr Tanuwidjaja.
The Federal Reserve is expected to delay rate cuts this year as US inflation remains elevated, he said.
UOB now prices in two Fed rate cuts of 25 basis points each, in September and November, down from its previous projection of a trim of 0.75 percentage points. Risk is still tilted for the Fed to delay cuts even longer based on inflation risks, said Mr Tanuwidjaja.
While Thai interest rates are expected to be cut ahead of the US, UOB doesn't see much impact on the baht given the country's strong current account surplus.
"Stronger fundamentals and resilient external positions continue to support the baht," he said, adding the bank's updated forecasts for the exchange rate are 36 baht to the dollar this quarter, 35.6 baht for the next three months and 35.2 baht by year-end.