Thai economy in 2H23 will be challenged by declining exports, drought and high debt levels

Meanwhile, concerns persist over the severity of the ongoing drought and the substantial amount of household debt which remains unresolved.

Nattaporn Triratanasirikul, KResearch Deputy Managing Director, said, "The Thai economy during the latter half of 2023 will show a more promising outlook, compared to the first half, fueled by the tourism high season. International tourist arrivals for 2023 are projected to reach 28.5 million, thus prompting 2H23 GDP growth to stand at around 4.3 %, surpassing the figure of 3.0 % for the first half. However, Thailand's economic recovery will face numerous challenges during the second half of 2023. The first challenge lies in the formation of a new government and how it will deal with the faltering Chinese economy, which could present risks to the Asean and Thai economies that rely heavily upon China. KResearch maintains its 2023 GDP growth at 3.7 % and export growth at -1.2 % but cuts its forecast for public sector consumption and investment, pending the new government's formation. Meanwhile, household debts are a complex issue that requires effective resolution."

Another challenge is drought. Kevalin Wangpichayasuk, KResearch Deputy Managing Director, said, "Aside from the adverse impacts of drought on the agricultural sector, estimated at 48 billion Baht during 2023, it is expected that the El Niño phenomenon may put pressure on the manufacturing and service sectors that use tremendous quantities of water, including non-metal, food processing, textiles, tourism and hospitals, especially the businesses located in the eastern and central regions where there is a potential water shortage or crisis. The shortage of water may force businesses to reduce their production capacities or limit services, leading to loss of income. Several industries, including food processing, will continue to experience the rising costs of agricultural-based raw materials. Additionally, drought-related issues may persist into 2024, with a potential severity greater than that seen in 2023."

Finally, there is the matter of hefty household debt. Thanyalak Vacharachaisurapol, KResearch Deputy Managing Director, is of the view that the household debt to GDP ratio will stand in a range of approximately 88.5-91.0 % at the end of 2023, against the figure of 90.6 % as of the end of the first quarter of 2023. However, it is unlikely that the household debt to GDP ratio will decline to 80 % within the next five years. That ratio is considered the level at which the economy can continue to grow without interruption, according to the Bank for International Settlements (BIS). Meanwhile, the Bank of Thailand's measures may cause new debt to grow at a slower rate and existing debt to decline faster.

In addition, KResearch's survey results on household debt in Bangkok and metropolitan areas, with a sample size of 400, highlight significant concerns about the debt issue, particularly among low-income earners. The survey respondents tended to cite the importance of the 'income' factor in achieving sustainable debt resolution.

Regarding the Bank of Thailand's debt solution measures, the initial focus is on cutting persistent debts, especially revolving personal loans, with lower interest rates to enable borrowers' full debt repayment within four years. Preliminarily speaking, commercial banks are expected to see a limited impact of roughly no more than 2 % of net profits in the Thai banking system. However, borrowers may need to shoulder higher monthly repayments. Additionally, the new government is expected to put effort towards managing substantial debt burdens, particularly among farmers, teachers, and civil servants (the debts incurred by teachers and police officers account for approximately 10.5 % of total household debt), as well as the debts transferred to the Asset Management Company (AMC), amounting to hundreds of billions of baht.

Thus far, these sectors have yet to receive sufficient support from the assistance measures. Moreover, debts of retail and small business customers largely remain unresolved. These circumstances will eventually affect household livelihoods and the viability of small businesses in Thailand going forward.