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Opportunities and Challenges of Thailand’s Economy in Q2/2023


    Amonthep Chawla, Executive Vice President and Head of Research Office and Wealth Research and Advisory of CIMB Thai Bank stated that Research Office have revised Thailand’s GDP growth projection downward from 3.4% to 3.3% after a disappointment growth of 2.6% in 2022. Tourism is a growth engine whereas exports drag on growth amid volatility in global economy and financial market.


    Household consumption would likely expand moderately in line with tourist spending on hotels, restaurants, food, beverage, transports, retails and wholesales. However, purchasing power among locals on clothing, footwear, furniture, education and healthcare would remain weak. In addition, we would monitor a sharp decline in car sales in Q4 last year whether how much they could recover early this year. During the past years, private consumption grew slower then GDP. This year, we expected private consumption to expand by 3.5%, faster than the growth of GDP, highlighting that private consumption could be a main contribution to growth, driven by tourism-related and service sectors. However, we could not count on the recovery among low-income segment much as farm income would remain weak, despite higher farm outputs as inflation remains high and elevating household debt could get some pressure from rising interest rate environment, which could deter household spending during the second quarter of this year. Household spending could get some boost from spending on political campaign before the general election in May 14th while we expected money flows to low-income households in provincial areas.


    However, money circulation is unlikely to be large enough to sustain employment and to generate higher income these areas. We would need to keep an eye on a delay in general election results which could affect general government budget timeline on October 1st. Public consumption and public investment could be lower than our earlier forecasts. Delayed public infrastructure projects could discourage private investors from launching new construction sites, except for condominium along extended mass transit lines valued below 3 million baht per unit which continue growing amid affordable prices among locals. Imports for capital goods could be lower than earlier forecast due to softening global demand, especially in the US and EU while we are concerned about geo-political risks, especially US-China trade war, affecting Thailand’s manufacturing for exports. There is some hope on industry relocation from China to evade on-going trade war.


    Following an expectation on softening global demand amid volatile financial market, we revised down export growth to -2%. Electronics and parts could get hit from a short-term cyclical downturn, especially on Hard Disk Drive (HDD), following past purchases for work-from-home by US and European households. Meanwhile, exports of automobile and parts, processed agricultural products and processed food would likely remain soft. However, Thailand could regain a surplus in current account balance this year amid higher-than-expected number of tourists. We expected roughly 28 million tourists this year, mainly from Malaysia, India, Singapore, Vietnam, Russia, EU and the US. The recovery of tourists from China has been slow while we expected a more speedy recovery by the second half of this year. We cannot expect much of tourism revenue during the second quarter due to a low tourist season, which could not benefit current account balance as much as past quarter.


    Regarding interest rate outlook of Thailand, we are projecting the terminal rate at 2.00%, meaning an additional hike by 25bps on May 31st. The MPC meeting in March signaled growing concerns over persistently high inflation while the economy appeared to expand gradually and financial conditions in Thailand were not affected from global financial volatility due to recent US bank run. Initially, we thought that the Bank of Thailand could pause the rate hike in May for evaluating the speed of recovery in Thailand amid easing tension from the end of US rate hike cycle in May. March’s inflation has come down amid declining oil prices in light of softening oil demand for fear of global recession. However, oil prices jumped up in April, following a production cut by OPEC plus, which could raise concerns over higher-than-expected inflation. Thus, we viewed that there could be another rate hike in May to curb inflation expectation.


    For our view on the exchange rate, we viewed that the baht could be moving around 33.50-34.50 baht per US dollar, following volatile oil prices and uncertain US rate hike. The baht could weaken against the US dollar in Q2 amid softening current account balance surplus, which could turn deficits in line with seasonal large dividend payouts. We expected more stable capital markets in Thailand during the second half of the year amid certainty on US interest rate outlook and more vibrant tourism spending, which could allow the baht to strengthen against the US dollar to the level 33.00 baht per US dollar by year end.



                Opportunities and Challenges of Thailand’s Economy in Q2/2023




Condominium valued below 3 million baht along extended mass transit lines

Rising interest rates

Money circulation during the general election

Shrinking exports

Gradual recovery of tourists from China

Weak purchasing power among low-income households

Industry relocation from China

High and rising cost of living

Slightly higher farm income from rising farm outputs

Volatile global financial markets