SCB EIC upgradeS Thailand’s 2023 GDP growth to 3.9%

SCB EIC upgradeS Thailand’s 2023 GDP growth to 3.9%

SCB EIC sees stronger growth throughout the rest of the year mainly driven by tourism sector, private consumption and better-than-expected global economy. However, rising concern over global financial stability is a new risk that warrants close monitoring.

SCB EIC revised up its economic growth forecast for Thailand in 2023 to 3.9% (previously 3.4%), thanks to being upbeat about a rebound in tourism and service sectors.

Foreign tourist arrivals will likely hit 30 million in 2023 before resuming the pre-pandemic pace by late 2024. With China lifting its Zero-COVID restrictions, Chinese visitors should bounce back to around 4.8 million this year, alongside improving tourist arrivals from other countries. This would support the labour market and consumption recovery. Meanwhile, the outlook for Thai exports remained quite sombre but 1.2% growth is still expected this year, thanks to better-than-expected global economic growth and an upside rebound in Chinese demand.

The Middle East, CLMV, and Latin America are potential markets for Thai export opportunities. On the domestic front, private investment is expected to gain traction in tandem with improving business sentiment and notable increases in the number of applications and certificates for investment promotional privileges. Moreover, headline inflation is expected to stay within the target range at 2.7%, given falling global energy prices and ongoing energy subsidies from the government. Meanwhile, core inflation will decline to 2.4% yet remain elevated, reflecting higher cost pass-through from producers to consumers on the back of stronger economic momentum and demand-pull inflationary pressures.

Somprawin Manprasert, Ph.D., First Executive Vice President, Chief Strategy Officer and Chief Economist of the Economic Intelligence Center (EIC) at Siam Commercial Bank PCL, stated that, “SCB EIC expects the global economy to perform better than previously forecasted. Hence, we upgraded our global economic forecast from 1.8% to 2.3%. The upward revision was attributed to key economic upturn that beat the consensus and China’s rapid reopening. The US and EU economies would eventually avoid recession. China's economy will witness robust growth, as the reopening after a three-year lockdown should unleash the pent-up private consumption. Furthermore, recent turmoil around the collapse of Silicon Valley Bank (SVB) in the US, following a liquidity crisis, could ripple across global financial market sentiment and liquidity in the short term. The SVB shutdown is unlikely to signal a repeat of the 2008 crisis, yet is considered an alarming risk that should be watched closely. Another downside risk comes from the US-China geopolitical conflicts that could imperil the global economy, global trade and global supply chains.”

“Global headline inflation will likely cool along with a decline in energy prices. In contrast, core inflation—an important figure in the central bank’s decision-making — would fall back more slowly due to robust employment readings, which help strengthen labour income and spending. As a result, we expect the major central banks to stay the course on rate hikes and keep their policy rates high for an extended period. The Fed will likely push its benchmark funds rate to 5.25-5.5% (previously 5.0-5.25%), while the ECB would raise its policy rate to 3.75% (previously 3.25%). Nonetheless, the pace of rate hikes should be slower than in 2022, and the global financial conditions this year will continue tightening, albeit decreasingly.

"In our view, the tourism sector and consumption would be significant drivers of Thailand's economy in 2023. The return of international tourists should shore up businesses in the tourism ecosystem, particularly those with high

reliance on Chinese tourists. Moreover, Thailand’s labour market has regained its pre-pandemic momentum thanks to a buoyant economic rebound and workers returning to the tourism and service sectors, thus resulting in higher wages in the tourism industry.”

“There remain major downside risks ahead for the Thai economy: (1) Escalating geopolitical risks could disrupt the global supply chain and Thai exports, (2) Global financial conditions may become acutely tightened as global inflation eases slowly, (3) Swelling household debt would repress consumption, and (4) Political uncertainties might deter investment sentiment and future government spending. Moreover, rising concerns around global stability is a new risk that needs to be closely monitored. As long as central banks can provide liquidity in a timely and sufficient manner, trust should remain in the stability of banking system.”

Thitima Chucherd, Ph.D., Head of Economic and Financial Market Research of the Economic Intelligence Center (EIC), stated that “In case of global financial crisis resurgence, the global economy might fall into a recession. EMs might encounter negative spillovers via four channels, namely, export slump, capital flight, tightening financial conditions, and monetary policy divergence for those countries with external vulnerability being forced to hike rates more aggressively to shore up their currency. The Thai economy might also face adverse impacts on exports and financial conditions. Thai financial markets might encounter rising volatility similar to global financial markets. The SET index might be shaken down following equity investment outflows, although Thai financial markets would withstand rising volatility better compared to previous financial crises. Our analysis shows that rising volatility in overall financial conditions exert stress on financial conditions to some extent. However, impacts of falling equity prices on Thai household wealth will be limited.”

“Still, household debt, which remains persistently high, could hamper future consumption—an alarming risk that calls for urgent solutions from the government. Based on the latest SCB EIC Consumer Survey, the share of respondents with expenses outweighing income during the past six months has been on the rise, notably among low-income cohorts. The number of newly indebted respondents has also rose sharply since the COVID-19 outbreaks when they tended to borrow for debt refinancing. Borrowers with informal debt remained our top concerns as they are likely to borrow more and could get caught in a debt trap.”

"The General Election 2023 is another issue that warrants close monitoring since it might affect government expenditure. This would primarily depend on how fast the new government could enforce the FY2024 budget decree. In SCB EIC base case, the upcoming election and transition to a new regime will not significantly deter public spending in 2023. The reasons are that the current government has disbursed much of the allocated investment budget since early FY2023 and the amount has already surpassed that in previous fiscal years. They have also already given the green light to new public construction projects. We expect lower budget disbursement from the interim government during the transition while the FY2024 budget decree should not be delayed by more than three months. However, if political unrest holds up the new budget enforcement for longer than our base case, government spending in general and public investment in particular would be adversely affected in 2023-2024.”

SCB EIC expects the MPC to carry on hiking the policy rate to 2% in H1/23, given a steady economic rebound and slowly easing inflation. Thailand's financial conditions should tighten further as central banks globally opt for policy rate increases, whereas financial supports start to peter out. The Thai baht is expected to weaken during H1/23 but regain steam against the US dollar to 32-33 THB/USD at year-end 2023, backed by Thailand’s improving economic fundamentals. In contrast, the US dollar is likely to lose pace, notably after the Fed ends its rate hike cycle in H2/23.

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