Thai economy to remain sluggish, research body says
According to Kiatnakin Phatra Financial Group’s KKP Research group, the Thai economy will remain sluggish for the foreseeable future despite the recovery of the tourism sector,
Most securities research firms had earlier expressed the belief that the Thai economy would recover based on the following three key factors:
(1) The faster-than-expected reopening of the country, which would positively impact the tourism sector and the overall Thai economy.
(2) That domestic consumption would show continued recovery thanks to the increase in income from the tourism sector.
(3) That exports would remain stable or improve due to the reopening of China.
However, recent signals indicate that the Thai economy has been weaker than projected. While tourism numbers have gradually recovered, economic recovery is not uniform and varies across sectors. Other sectors may face challenges and experience a slower recovery. This, it says, can be put down to three main factors that have changed since the beginning of the year:
1. Income from the tourism sector has not been distributed to other sectors of the economy as expected. While the number of tourists had reached approximately 11 million by May, the recovery in other sectors of the economy has not been as significant. Non-service sectors of the economy have only partially recovered.
2. Increasing interest rates, the delayed release of credit, and the increasing non-performing loans in the banking sector pose challenges to the Thai economy. Household debt in Thailand has reached a level of more than 80% of GDP, which could have negative consequences for the economy. Additionally, the current interest rates have risen higher than income levels, and there is a growing problem of non-performing loans within the country.
These factors have led banks to tighten lending criteria and have resulted in slower growth of credit, with overall credit growing only 0.6% in the first quarter. This trend could lead to a slowdown in consumer goods consumption, such as housing and cars.
3. The reopening of China has not resulted in a significant recovery of the Chinese economy as expected. In fact, the latest economic indicators for both consumption and investment in China show a slowdown, primarily due to structural factors, particularly in the Chinese real estate sector. In addition, the number of Chinese tourists may not reach the expected 5 million as most are high-income individuals who prefer destinations in Europe over Asean countries. Secondly, Thai exports in the latter half of the year may recover slower than expected due to the slower recovery of the Chinese economy. KKP Research estimates that Thailand's overall exports for the year could be negative at -3.1%.
The depreciating currency reflects the sluggish economy. The Thai baht has adjusted downwards faster than anticipated, indicating a slow recovery of the economy. Although there were concerns earlier in the year that inflation would persist at a high level despite the economic recovery, recent data suggests that the Thai baht's inflation rate has adjusted downwards relatively quickly. However, as the economy rebounds, the risk of currency depreciation remains. While the Bank of Thailand is still concerned about the future acceleration of inflation, the clear signs of a slowing Thai economy mean that the risk of inflationary pressure is low.
The expectation remains that the central bank will raise its policy interest rate once more to 2.25%.
In contrast, the US economy continues to grow strongly, which is a factor contributing to a higher and more prolonged US interest rate than the market expected. The difference in economic situations and interest rate trends between Thailand and the US increases the risk of the Thai baht weakening more than anticipated in the latter half of 2023.
KKP Research also estimates that the Thai economy will face at least three additional risks that could result in a more severe economic slowdown than anticipated, firstly, he changing global economic situation, characterised by high inflation rates and rising interest rates, which may affect Thailand's financial situation and debt burden. Secondly, the peak risk of an economic downturn is likely to persist until mid to late 2024, affecting Thailand's external sector, and last, the risks arising from political uncertainty, particularly in the case of severe incidents such as protests.
