Economy on road to recovery, central bank says

The bank is currently adjusting its GDP forecast for the September meeting but warns that exports remain slow and tourism is lower than expected. It will also be taking account of the potential impacts of the digital cash handout programme promised by Pheu Thai.

According to Sakkapop Panyanukul, senior director of BOT’s macroeconomic division, the overall economic and financial situation in July showed signs of recovery, with domestic spending increasing due to higher consumption and more private sector investments.

Foreign tourist arrivals increased to 2.49 million people, up from 2.24 million the previous month, a 0.9% increase. The total number of tourists this year is recorded as 15.4 million, mostly coming from Russia, Malaysia, South Korea, and Japan. However, tourism income has not significantly increased as the majority are short-term tourists.

Exports excluding gold saw a contraction of -1.8% over the previous month and -4.5% compared to the same period last year. While some categories like electronics, hard drives, and agricultural products declined, the automotive sector saw improvements in various markets.

In the private consumption sector, there was a positive adjustment of 1%, with improvements in almost all categories of goods, led by the tourism sector, hotels, restaurants, and transportation. Private sector investments also saw a 1.4% increase over the previous month, driven by construction activities, industrial estate expansion, and machinery investments.

Government spending, excluding transfer payments, increased by 3.6%, primarily driven by a 21.7% growth in investment expenditure, including rural road construction and state enterprise investments.

The labour market's recovery was in line with consumption. The number of social security-covered employees increased, while overall job seekers decreased. However, new job seekers slightly increased, indicating a need for further observation.

Inflation in July saw a slight increase of 0.38% from June's 0.23%, mainly due to rising energy prices and geopolitical events. Core inflation decreased from 1.32% to 0.86%.

The Thai baht, meanwhile, strengthened to 34.46 Baht per US dollar in July from 34.92 in June, influenced by expectations of a US Federal Reserve interest rate hike. In August, the Baht weakened slightly to an average of 35.02 Baht/US dollars influenced by improved US economy, weaker Chinese economic indicators, and lower-than-expected Thai economic figures. However, the trade-weighted index remains relatively stable and aligned with the region.

Sakkapop added that the Monetary Policy Committee (MPC) meeting on September 27 could lead to revisions in the economic growth forecasts for this year (projected at 3.6%) and 2024 (forecast at 3.8%). External factors, particularly export conditions, will play a crucial role. The third quarter of this year may not see a significant export recovery due to base effects, but the fourth quarter could indicate a recovery in the electronics sector.

Although the tourism sector is on a recovery path, tourist spending remains lower than anticipated due to short-term tourist arrivals. However, domestic economic expansion continues, aligned with sustained consumer spending.

Sakkapop also mentioned that the digital payment policy of 10,000 Baht as part of the government's economic stimulus could cost approximately 500 billion Baht or around 3% of GDP. However, a detailed impact assessment on economic growth and inflation is yet to be determined as the specific details of the digital cash distribution are unclear.

He emphasised that the economic impact would depend on how the funds circulate. If one full rotation leads to a 3% economic expansion, the digital cash handout, with a slower circulation, might have a lesser impact.