Global: China reopening could be a game changer or create greater uncertainty
Global activity indices show signs of recession; China’s reopening may have limited impact on global growth and inflation given modest savings rate and easing supply disruption
There is room for international tourist arrivals to improve in Asia Pacific region because it had been weaker than in other regions for almost three years
US: Tight labor market might allow the Fed to raise rates but risk of recession and signs of slowing price pressure suggest the Fed to scale back rate hikes
Europe: Recession may be milder than expected as hard data is surprisingly resilient
China: A shift in Covid policy would brighten economic prospects led by a rebound in private consumption, but there are still risks
Japan: Downside risk increases as export growth slows, but recession remains unlikely
Thailand: Balanced upside and downside risks; maintain 2023 economic growth forecast at 3.6%
Krungsri Research Forecasts for 2022-23
Key factors in 2023: Downside risks from weakening global growth and tightening financial conditions; upside from reopening in China and Thailand
Tourism and domestic economic activities are gaining traction but more pronounced slowdown in the global economy could rein in Thai exports
Tourism sector: China’s hasty reopening will boost tourist arrivals; We now expect 25-28 mn foreign tourist arrivals to Thailand this year instead of 22.7 mn
In 2022, foreign tourist arrivals reached 11.1 mn, higher than expected and a major improvement from 0.43 mn in 2021. That was supported by relaxation of international travel restriction as the pandemic eased. Most of the tourists were from short haul destinations in Asia. The number of long-haul visitors from the US and Europe improved in late 2022. Looking at 2023, given China’s earlier-than-expected reopening and removal of quarantine requirements for inbound travelers since January 8, Krungsri Research has revised forecast tourist arrivals from 22.7mn to 25-28mn. Initially, the recovery in arrivals from China will be capped by limited flights and continued restrictions on outbound tours from China. This suggests the first arrivals from China will be mostly independent travelers and/or high-income earners, and we would see stronger arrivals in 2H23.
Private consumption would be supported by the recovering tourism sector, rising employment, and stimulus measures
In November 2022, the private consumption index rose 7.2% YoY and also improved month-on-month, driven by (i) fading effects of recent flooding, which supported spending on non-durable goods; and (ii) higher spending on services following an increase in foreign tourist arrivals. In early 2023, purchasing power has also increased supported by improving consumer confidence and continued recovery in the tourism sector, the higher employment (the number of insured under Section 33 is near pre-COVID level, and measures to boost spending including (i) Shop-Dee-Mee- Kuen (personal income tax deduction for spending on eligible goods or services worth up to THB 40,000, valid from 1 January to 15 February this year); and (ii) additional subsidy (THB200 per person in January) for welfare card holders. However, high cost of living will continue to cap consumption.
Export growth has decelerated along with the slowdown in global and trading partners’ economic activities; Krungsri Research has trimmed 2023 forecast export value to register 0.5% growth
Exports saw gains in some merchandise goods; the country’s services balance may improve along with recovering tourism activity which would lift the current account surplus
Export volume tumbled in 4Q22 and is likely to remain weak throughout 2023 despite anticipated improvements following China’s reopening. Thai exports would be supported by more shipments of merchandise goods such as food, sugar, electrical appliances, cars & parts, and electronics amid the easing chip shortage situation. In addition, healthier tourism activity after China reopened earlier-than-expected and falling freight rates would strengthen Thailand’s services balance. We now project 2023 current account surplus would increase to USD 8bn instead of USD 6bn.
Manufacturing production would be hurt by weaker exports but supported by recovering economic activity
Manufacturing production index contracted for the second month in a row, by 5.6% YoY, attributed to (i) a drop in HDD and rubber & plastic production in line with slowing external demand; (ii) smaller output of petroleum products because several refineries had closed for maintenance. Overall capacity utilization remained below pre-COVID level but have exceeded pre-COVID levels for some industries, including automotive, IC& semiconductors, pharmaceutical and machinery. Looking ahead, manufacturing production could face headwinds from a subdued export sector dragged down by a slowdown in economic activities globally and demand among Thailand’s major trading partners. However, there are some positives arising from recovering domestic activity and easing chip shortage situation.
Private investment remained vulnerable due to subdued exports and higher production costs, but would be supported by healthier tourism sector
Headline inflation would remain elevated in early 2023 due to higher costs of electricity and public transportation, but it is expected to soften to 2.5% for the year
Policy rate: We expect two more rate hikes this year to 1.75% amid softening inflation and a stronger baht; Thailand’s economic recovery may not be enough to allow aggressive rate hikes