Siam Commercial Bank raises growth forecast for Thai economy to 3.9%

The bank’s Economic Intelligence Centre (EIC) raised its growth forecast for the Thai economy by half a percentage point from its 3.4% forecast in November.

Still, it cautioned that there are new risks to monitor following the recent collapse of Silicon Valley Bank (SBV) in the United States and the liquidity crisis at Credit Suisse.

Somprawin Manprasert, chief economist at EIC, told reporters on Friday that the global economy and Thailand’s will perform better than previously forecast, due primarily to the end of China's zero-Covid policy and the reopening of its borders.

The return of Chinese visitors is expected to increase the number of foreign visitors in Thailand by 25%, from the EIC’s previous forecast of 25 million to 30 million this year.

The number will return to pre-pandemic levels by late 2024, Somprawin said, adding that the large number of tourists will create jobs and spur consumer spending.

Although the outlook for Thai exports remains bleak this year, the sector is expected to grow by about 1.2% on the back of stronger-than-expected global growth and a rebound in demand in China, Somprawin said.

While the economies of Europe and the United States may slow, Thai exports to the Middle East, Southeast Asia, and Latin America could offset demand in the two major markets, he said.

"We cannot claim that exports will see promising growth, but the sector is not the worst either," Somprawin said.

Private investment is expected to grow in tandem with improved business sentiment, he said, adding that there have been significant increases in the number of applications and certificates for investment promotional privileges in Thailand.

Falling global energy prices and ongoing government energy subsidies will keep headline inflation at or below 2.7%, Somprawin said.

Core inflation will fall to 2.4% but remain elevated, reflecting higher costs passed from producers to consumers as the economy strengthens and rising demand increases inflationary pressure, he said.

In addition to revising Thai growth, the EIC also raised its forecast for global economic growth from 1.8% to 2.3%, citing China's rapid reopening and the US and the EU avoiding recession.

Global headline inflation will likely moderate as energy prices fall, Somprawin said.

Core inflation, which affects rate decisions by central banks, will fall more slowly due to strong employment, which will increase income and spending.

Somprawin said major central banks are expected to maintain interest-rate hikes and keep policy rates high for an extended period of time.

In the US, the Fed is expected to raise its benchmark funds rate to 5.25 to 5.5% (from 5.0-5.25%), while the European Central Bank will raise its policy rate to 3.75% (from 3.25%).

The pace of rate hikes should be slower than last year, Somprawin said.

Although growth forecasts for the Thai and global economies have been raised, the EIC identified four major risks:

• - Escalating geopolitical tension may disrupt global supply chains and Thai exports,
• - Global financial conditions may tighten acutely as global inflation gradually eases,
• - Rising household debt may stifle consumption, and
• - Political uncertainty may deter investment and future government spending.

The emergence of concerns about global financial stability has introduced a new risk that requires close monitoring, Somprawin said. This includes the recent turmoil sparked by the collapse of SVB as well as Credit Suisse's liquidity crisis.

Both could have a short-term impact on global financial market sentiment and liquidity, Somprawin said.

The closure of SVB is unlikely to lead to a repeat of the 2008 financial crisis, but it is a risk everyone should be aware of, he said.

The problems at Credit Suisse may dampen investor sentiment, but the Swiss National Bank's immediate supportive measures will calm the market and bring it back, he added.

"As long as central banks can provide a liquidity facility in a timely and sufficient manner, trust in the stability of the banking system still remains," Somprawin said.

 

Thitima Chucherd, head of economic and financial market research at EIC, said prolonged financial turmoil would send the global economy into recession and the Thai economy would see declining exports and deteriorating financial conditions.

Thai financial markets, like global financial markets, may experience rising volatility, Thitima said. However, previous financial crises have shown that Thai financial markets can withstand rising volatility, she added.

For the Thai economy, concerns are focused on other issues, particularly household debt, which has remained persistently high and may impede future consumption, Thitima said.

Borrowers with informal debt remained the EIC's top concern because they are likely to borrow more and become trapped in debt, she said.

The Thai government must provide urgent solutions to the household debt [crisis], she said.

The upcoming election warrants close monitoring to see how it affects government expenditures, she said.

The EIC base case is that the upcoming election and transition to a new government will have no significant impact on public spending in 2023. The current government has already spent a large portion of the allocated budget for this fiscal year.

"We expect lower budget disbursement from the interim government during the transition, and the 2024 fiscal year budget decree should be delayed by no more than three months,” Thitima said.

However, if political unrest delays the budget for the next fiscal year, government spending will be reduced and this will impact public investment, she explained.

Somprawin said Thailand's economy will gradually improve but with more caution. The country's financial situation is expected to tighten as central banks around the world raise policy rates, while financial aid begins to dwindle.

The Thai baht is expected to weaken in the first half of this year before rebounding against the US dollar to 32-33 baht per dollar by year-end, the EIC said. The US dollar is expected to lose ground, particularly after the Fed completes its rate hikes in the second half of this year, it said.