Global: Slowing growth and only mild uptick in sentiment
Global PMI rose to an 8-month high, rebound in manufacturing activity led by EMs, new orders expanded for the first time since June 2022, Red Sea tension has limited impact
US: Despite signs of slowdown, the strong labor market and sticky inflation support expectations the Fed would start to cut rates in mid-2024; risks could rise after election
Eurozone: Economy has gone through the worst in 4Q23 but will stagnate in 1H24; ECB has signaled June rate cut as inflation falls
Japan: Narrowly avoids recession as Q4 growth was revised; combined with encouraging sign of wage hike, the BOJ is nudged closer to hiking rate
China: Economy has improved slightly amid easing deflation, but faces greater threats from trade protectionism; 2024 economic goals focus on addressing structural issues
Thailand: Hoping for stronger public spending; exports seem to be struggling despite improving external demand
Krungsri Research Forecasts for 2024
Exports improved year-on-year in January, but export value was still below 2023 average amid persistent challenges in the global economy
Despite improving global manufacturing activity, there are limited opportunities for Thai exports given structural headwinds and weak domestic industrial sector
Exports from Asian countries, including Thailand, have been recovering as demand for electronic products improve and supply disruptions ease. However, there is a structural problem in Thailand - a persistently weak manufacturing sector, which was reflected in February Thai Manufacturing PMI which remained in contraction territory (below-50) for the seventh consecutive month. That contrasts with the ASEAN Manufacturing PMI which was above-50 for the second consecutive month. This has raised concerns that Thai exports might be losing competitiveness and is struggling to keep up with evolving global demand patterns, suggesting exports could remain subdued ahead.
Tourism sector: Foreign tourist arrivals hit post-reopening high in February; tourist receipts have also improved
In February, Thailand welcomed 3.35 million foreign tourists, exceeding 3 million for the third consecutive month and the highest since reopening. In the first two months of this year, tourist arrivals reached 6.39 million (87% of pre-Covid level) and generated THB310 bn receipts (88% of pre-Covid level vs 63% in 2023), led by Chinese tourists, which made up the largest group but was still only 58% of pre-Covid level. Meanwhile, tourists from Malaysia, Russia, South Korea, and India surged to 106-149% of pre-pandemic levels. Recently, the tourism sector has shown positive signs with improving tourist receipts, permanent visa-free program between Thailand and China effective March 1, and extension of the visa-free program to August this year for Kazakhstan tourists which are potentially high-spenders. These measures will attract more tourists to Thailand; we estimate total arrivals would reach 35.6 million this year.
Public spending: Thai government has expedited draft of FY2024 Budget Act to facilitate disbursements in early Q2
In January, public spending contracted compared to the year-ago period due to smaller capital expenditures by the central government following delays in approving FY2024 Budget Bill, and from lower current expenditures (smaller disbursements to education agencies). Investments by state-owned enterprises expanded, driven by disbursements for transportation and energy projects. Recently, the cabinet approved a timeline for the approving of FY2024 Budget Act to expedite enforcement and disbursements in early of April, two weeks sooner than previously planned.
Public infrastructure spending to support the economy in 2H24
The delayed preparation the FY2024 budget bill has led to investments in government construction projects being delayed in 2024. They include the country’s transportation and logistics systems and development of trade linkages with neighboring countries. The projects include high-speed railway and Phase 1 and 2 of the dual-track line, improvements to the national highway system, and development of regional airports to improve integration across the transportation network. Work on a total of 31 projects with a total value of THB 390bn is due to commence in 2024, followed by another 57 projects worth THB 260bn in 2025*.
Private investment could improve from Q2 onwards due to crowding-in effect but will remain fragile due to structural problems in the manufacturing production sector
Private investment shrank -0.2% YoY in January, but after adjusting for seasonality, it improved 2.6 % MOM led by stronger investment in machinery & equipment following higher imports of capital goods and higher investment in construction. Support for the recovery of private investment in the next period include (i) a potential rebound in public investment which will create crowding-in effect from Q2 onwards; (ii) investments in the services sector which will benefit from recovering tourism activity; and (iii) investment incentives for targeted industries. However, industrial production and capacity utilization rates are low and have yet to returned to pre-pandemic levels. That could reflect structural problems in Thailand’s manufacturing production sector.
Private consumption marked slower growth despite benefiting from recovering services and activities as well as the tax refund program
In January, private consumption grew 1.5% YoY. After adjusting for seasonal factors, it was stable compared to the previous month. The rise in spending across nearly all product categories was driven by a jump in foreign tourist receipts in the month; if we exclude that, private consumption by local residents was stable compared to the previous month. There was some support for household purchasing power, specifically improving consumer confidence. The (CCI) Consumer Confidence Index rose to a 48-month high of 63.8 in February. But, there could be several headwinds in the next period, including (i) payback effect when the Easy E-Receipt program expires in mid-February, (ii) high household debt, and (iii) drought impact on farm income.
El Niño to transition to Neutral in mid-2024 but drought conditions since 2023 could still hurt this year’s harvest and reduce 2024 GDP by over THB50bn
El Niño has been affecting the climate in Thailand but the full effects will manifest in 2024 as the country experiences higher temperatures. The delayed onset of seasonal rains would cause below-average precipitation across the country. In 2023, the effects were most visible on crops that are sensitive to water shortage, such as off-season rice and cassava. In 2024, the effects will spread to other major crops, including sugarcane, corn, fruits, and forestry goods. In some cases, the effects could be worse for downstream industries than upstream suppliers. In our baseline case, drought-related losses are expected to reach THB 55.5 bn or 0.31% of GDP; it could reach THB 87-119 bn or 0.48-0.66% of GDP if the drought is more severe than expected in 2024.
Most household loans non-productive; NCB warns household debt is still rising, bad debts a growing concern
At the end of 2023, loans outstanding in the NCB consumer database rose to THB13,683 billion from THB 13,200 billion in 3Q23, and rose by 3.7% YoY. Share of non-productive loans was high at 59% of total loans in 4Q23. Compared to the previous year, total NPLs surged 6.6% driven by auto loans (+28%), personal loans (+12%), and credit card loans (+11.9%). Meanwhile, there are rising concerns over the strong jump in housing and personal loans categorized as Special Mentions (SM*), by 31.1% YoY and 24.1%, respectively, in December. This could turn into NPLs in the future, which will worsen the household debt problem and make it more challenging to address. If Thai GDP growth cannot return to the potential rate of above 3%, the ratio of household debt to GDP could remain close to 90% this year and the BOT would take longer to bring debt level back to its target of 80% of GDP. This suggests Thailand needs to take urgent action in a large scale to address its debt problem.
Still-low core inflation, close to pre-pandemic level, could prompt the MPC to consider its first interest rate cut in mid-2024
2Q24: Higher public spending and recovering tourism activity would support growth but upside could be capped by drought, higher debt levels, and external risks