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Dr. Amonthep Chawla, Head of Research office and Head of Wealth Research & Advisory at CIMB Thai Bank PCL., revealed that Thailand’s economy in the third quarter is likely to expand by 3.0% compared to the same period last year. Furthermore, a favorable outlook for the fourth quarter can be seen, with a potential growth rate to nearly 5.0%. Therefore, we expect a clear path of recovery for the Thailand’s economy in the latter half of the year.


The rapid growth of Thailand’s economy can be attributed to three key factors.


  1. Faster-than-expected recovery in the number of tourists. The number of tourists is expected to rebound at a quicker pace than initially anticipated and faster than the observed growth in the first half of the year. Notably, several countries, including Malaysia, India, South Korea, Europe, and Russia, have already begun to witness a return of tourists to the level comparable to that before the COVID-19 pandemic. However, it is important to await more return of Chinese tourists but there is a belief in the high potential for the return of Chinese tourist arrivals as their influx is expected to significantly contribute to the positive outcomes to the service industry, such as hotels, restaurants, transportation (airlines), and retail, especially in the upscale market segment, such as 4-star hotels and higher. Moreover, this growth is expected to extend beyond Bangkok and Phuket to other popular tourist destinations like Pattaya, Samui, Krabi, and more.
  2. Positive turnaround of export sector. After experiencing a period of negativity at the beginning of the year, it has witnessed a recovery in the electronics industry and automotive parts which is likely to bolster the investment sector and result in favorable employment conditions contributable to the growth of the consumption sector. The processed food and processed agriculture segments are anticipated to experience a substantial rebound in the third quarter, primarily driven by an increase in demand from China.
  3. Anticipated stability or moderate decline of oil price in the global market. It is probable that the price of oil in the global market will tend to stabilize or moderately decline, influenced by economic factors in the United States and Europe, which are expected to exhibit slower growth rates. The decrease in oil price is likely to alleviate people’s cost of living within the country, thereby supporting a trend of stabilizing and consistently declining inflation. Moreover, other commodity prices are anticipated to stabilize or decrease in tandem with oil prices. Consequently, this facilitates a reduction in agricultural cost due to declining animal feed price as well as maintains stable material prices in the construction sector. However, these benefits may be limited due to the adverse effects of drought resulting from El Niño condition.


However, the recovery of Thai economy in the third quarter faces risks that could potentially impede its progress from three key factors.


  1. Uncertainty of the government formation. The uncertainty of the government formation could lead to potential delay. This uncertainty may cause the foreign investors to wait-and-see before reinvesting in Thailand. Consequently, Thailand may lose opportunities to the production base migration from China, particularly in key industries. Furthermore, the country may experience setbacks in expediting free trade negotiation (FTA) with European countries or important trading partners. Such affect could prompt foreign investors in Thailand to consider relocating their production base to alternative countries like Vietnam, if the domestic situation remains unsupportive to the production base establishment within Thailand. Additionally, a continuous decrease in government expenditures and the investment budget could adversely affect the domestic investors’ confidence. The lack of new public investment projects could potentially slow down private sector construction activities. However, this likely won't affect the ongoing projects like the 3-million-baht condominiums situated along mass transit extension lines.
  2. Slowdown of global economy, particularly for China’s economy. Although China initially witnessed an acceleration in economic growth during the first quarter at 4.5%yoy, after the reopening of cities and increased consumption, there are signs of continued deceleration. The export sector in China has shifted to a deficit, while the manufacturing sector has begun to exhibit a slower growth rate. Additionally, domestic spending within China has weakened compared to the beginning of the year. The Chinese government has already implemented measures to stimulate the economy, such as interest rate reductions, which may support the economy to some extent. However, the risks associated with a slowdown in Chinese economy persist, including ongoing trade and technology wars between the United States and China, aimed at exerting pressure on China's economic growth, particularly for Chinese export in the future and manufacturing sector. These adverse effects on its export sector and the slower pace of manufacturing may suppress Thailand's export and tourism sectors in the third quarter.
  3. Long-term increase in interest rates by the US Federal Reserve (Fed). Primarily driven by concerns regarding inflationary pressures as well as the core inflation, particularly pertaining to energy and food prices has been declining at a relatively slow pace, consequently, there is a possibility that Fed will continue raising interest rates with intermittent pauses between hikes. This could result in the interest rate hike beyond market expectations, at 5.75%, and potentially impeding the opportunity for interest rate reduction in this year. As a consequence, capital flows may leave Thailand and return to the US, leading to increased capital volatility and causing weakening Thai baht to approximately 35.50 Baht per US dollar. This could impact the cost of living in the country. Meanwhile, the Monetary Policy Committee (MPC) of Thailand is probable to raise interest rate once again in order to alleviate future inflationary pressure. However, the MPC may consider not raising interest rate during the August meeting, awaiting for greater clarity on the economic recovery, new government’s policies, as well as assessing the effects from high household debt and prevailing default risks before the monetary policy adjustment in September, reaching around 2.25%.


“Overall, we anticipate a gradual recovery of the Thai economy in the third quarter and clear signs of improvement in the fourth quarter. It is highly probable that the recovery of the Thai economy will maintain a positive outlook, potentially achieving the projected growth rate of 3.3% for the current year” according to Dr. Amonthep.