Thai and Global Economics
Outlook for advanced economies diverging amid worsening geopolitical tensions; Thailand prepares stimulus measure and debt-relief program
Glabal
Growth in US manufacturing and services is outpacing that in other advanced economies. Tensions between Russia and Ukraine are intensifying. In US, November Flash Composite PMI (indicating both manufacturing and services activities) climbed to a 31-month high of 55.3 on the back of expectations of lower interest rates and hopes for business-friendly economic policies under the Trump administration. However, in the Eurozone, November Flash Composite PMI fell to a 10-month low of 48.1, indicating a contraction. In Japan, while November services PMI edged up to 50.2 in November, manufacturing PMI dropped to an 8-month low of 49.0. To mitigate rising household costs due to increased prices for goods and services, Japan's coalition government reached an agreement with the opposition party on a USD 87 bn stimulus package. On the geopolitical front, tensions between Russia and Ukraine have intensified, as Russia escalated its military attacks after the US and the UK authorized Ukraine to use their missiles for strikes deeper into Russian territory. Additionally, Russia announced an expansion of its nuclear defense strategy, further heightening global concerns.
The developed economies are facing differing growth trajectories: (i) The US continues to expand despite a cooling of the labor market. The Fed’s easing cycle is expected to continue at a gradual pace, likely bringing the Fed Funds Rate down to 3.25-3.50% by end-2025. (ii) Eurozone’s economic recovery remains fragile, which could prompt the ECB to reduce the benchmark policy rate to 2.00% by end-2025. (iii) Japan's economy is on a recovery path, supported by rising wages and government stimulus measures aimed at boosting consumption and private investment. The BOJ is anticipated to raise the policy rate by 25 bps to 0.50% by 1Q25. However, heightened geopolitical risks and uncertainties surrounding US trade policies remain significant factors, which could increase risks to global trade and economic outlook in 2025.
Thailand
The government is preparing household debt relief measures and a second phase of THB 10,000 cash handouts to help support consumption in early 2025. On 20 November, the committee tasked with oversight of stimulus policies agreed in principle to Phase 2 of the THB 10,000 cash handouts for 4 million Thai seniors aged 60 or older who registered this program. Payments are expected to be completed by end-January 2025. This will then be followed by phase 3 payments to all remaining eligible recipients in 2Q25. In addition, the committee also agreed in principle to a plan for restructuring household debts targeting 3 groups with total loans of THB 1.31trn, including: (i) home loan of no more than THB 3mn each, (ii) auto loan of up to THB 0.8mn per vehicle, and (iii) business loan to SMEs worth up to THB 3mn each. The debts, which have been classified as NPLs (for less than a year) before 31 October 2024, will be qualified for a 3-year suspension of interest payments. Funds for financing the scheme will come from a reduction of banks’ contributions to the Financial Institutions Development Fund (FIDF) from the current 0.46% to 0.23% of total deposits for 3 years.
The second round of THB 10,000 cash handouts for 4mn elderly individuals will use an additional budget worth THB 40bn, much less than the THB 145bn budget for the first round for low-income groups, suggesting a limited boost for domestic consumption through 1Q25. For the debt restructuring program, which provides a suspension on interest payments for households with NPLs for less than a year, this should help to ease some of financial burden on households and small businesses. However, the home, auto and business loans qualified for this program account for just 8% of total household debt (THB 16.3trn or 89.6% of GDP). This implies that addressing debt problems will take time and rather require an approach focusing on the structural causes of indebtedness, such as by reforming the economy to improve employment opportunities and build more stable sources of income, thus placing Thai households on a firmer and more sustainable financial footing.
