Global: Cyclical drivers, structural drags
IMF expect global growth to remain stable at 3.2% in 2024 and 3.3% in 2025, amid risks from escalating trade tensions and increased policy uncertainty
In July, the IMF saw the global economic outlook broadly unchanged from the April 2024 World Economic Outlook (WEO) forecast, with projected growth of 3.2% in 2024 and 3.3% in 2025. In the context of escalating trade tensions and increased policy uncertainty, the upside risks to inflation could increase, complicating monetary policy normalization or raising the prospect of high-for-longer interest rates. According to the IMF, the potential for significant swings in economic policy as a result of elections this year, with negative spillovers to the rest of the world, has increased the uncertainty around the baseline. These potential shifts entail fiscal profligacy risks that will worsen debt dynamics, adversely affecting long-term yields and ratcheting up protectionism. Trade tariffs, alongside a scaling up of industrial policies worldwide, can generate damaging cross‐border spillovers and trigger retaliation, resulting in a costly race to the bottom. By contrast, policies that promote multilateralism and faster implementation of macrostructural reforms could boost supply gains, productivity, and growth, with positive spillovers worldwide.
Global trends point towards softer growth ahead - slower growth in manufacturing new orders, new export orders contracted, future output dropped to 8-month low
US: Decelerating economic growth, disinflation, and Fed’s less hawkish views might prompt two rate cuts this year
Eurozone: Economic recovery remains moderate; escalating trade war with China creates downside risk to growth
Japan: Economic indicators show recovery extending to 2H24, while rebound in inflation could prompt the BOJ to raise policy rate at July meeting
China: Despite some easing in the real estate sector, economic recovery would be limited and uneven given excess supply in major sectors and persistent weak consumer sentiment
Thailand: Cyclical recovery lags and structural problems linger
Krungsri Research Forecasts for 2024
2H24 Outlook: Cyclical recovery to be capped by domestic and external headwinds
We expect 2024 GDP growth at mark only +2.4%, reflecting longer-than-expected delays in public spending, weak exports, and structural headwinds. However, growth would improve to 3% y-o-y in 2H24 from an estimated 1.8% in 1H24. The Thai economy would see a cyclical recovery with further growth in the tourism sector and accelerating disbursement of public spending from mid-2024, particularly capital expenditures (after a 7-month delay in approving the Budget Bill).
Tourism sector: Foreign tourist receipts rose to 90% of pre-Covid level in 1H24; tourist arrivals are expected to increase to 18.1 mn in 2H24 from 17.5 mn in 1H24
Thailand welcomed 2.74 mn foreign tourists in June, marking a slight improvement from May (+4.0%), driven by the extended free-visa measure and Pride Month celebration. In the first half of 2024, tourist arrivals reached 17.5 mn (89% of pre-Covid level vs 71% in 2023) and generated THB 826bn receipts (91% of pre-Covid level vs 63% in 2023) led by Chinese tourists which made up the largest group; however, they are only 61% of the pre-Covid level. Tourists from Malaysia, India, Russia, and South Korea surged to 103-126% of pre-Covid levels. We maintain foreign tourist arrivals at 35.6 mn for this year, supported by the decision to extend visa-free visits for tourists from 93 countries (vs only 57 countries in 1H24), and increasing flight routes and frequencies from target tourist countries such as India.
Accelerating public spending helped to drive the economy in the second quarter, but monitor disbursements after it contracted again in June
According to preliminary data from the Ministry of Finance, public spending had improved significantly in the second quarter of the calendar year (March-June 2024). It is expected to be a key driver of GDP growth in 2Q24. Current and capital budget disbursements increased by 44.4% and 319.7% from 1Q24, respectively, and by 22.3% and 48.1% from 2Q23. But in June, both current and capital budget disbursements fell again, by 5.8% and 7.5% y-o-y, respectively. This comes after a sharp acceleration in May (+114.3% and 166.8%, respectively). In the first 9 months of FY2024 (October 2023 to June 2024), spending of the current budget reached THB2.15 trn or 78% of the annual budget and rose 3.3% YoY. For the capital budget, the government disbursed THB0.27trn or only 37% of the annual capital budget, falling 24.1% YoY.
Despite improving public investment, private investment remains slow amid weak exports and sentiment, and uncertainty in the domestic political scene
Private investment remains weak, reflected by the following: (i) Private Investment Index contracted in May (-3.0% YoY and -3.0% MoM sa); (ii) Business Sentiment Index remained in the contraction zone in June (below 50) for the ninth consecutive month; and (iii) Manufacturing Production Index contracted by 1.5% YoY in May after expanding in April for the first time in 19 months. Additionally, the capacity utilization rate has remained below 60% for 10 consecutive months. We expect private investment to remain volatile for the rest of the year. Although some segments may benefit from accelerating public investment, weak exports could discourage private investment. Additionally, domestic political uncertainties might continue to pressure investor sentiment.
Exports are expected to grow at a slower pace in 2H24 amid headwinds from structural problems and rising trade tensions
Recent export growth attributed to temporary rise in agricultural outputs; Thai exports might grow by only 1.8% this year
In the first five months of this year, Thai exports grew 2.6% YoY led by agricultural products which increased by 4.7% (including rice, rubber, and fruit). Exports of industrial products (computers & parts, and plastic products) expanded by 2.4%, while exports of agro-industrial products (rubber products, tapioca products, and sugar) fell by 1.3%. Exports remained weak in many Thai industries (including cars & parts, electronic ICs, chemical products, and plastic resin), reflecting structural problems in Thailand's industrial production sector. Although there are some positive signs with rising exports from key Asian countries, we expect Thai exports to grow slowly the rest of this year due to weak manufacturing activity and the impact of trade tensions.
Global growth and trade could be hit by US-China tariff hikes; worst impact on China and US but Asian countries could benefit from trade divergence
For the global economy, the 25% tariff hikes by US-China would reduce global economic growth by 0.09% and exports by 0.57%, from the baseline. US-China tariff hikes would hurt both countries’ exports (China -5.76%, US -3.26%) and GDP (China -0.50%, US -0.25%). Thailand and other Asian countries could benefit from trade diversion and longer-term relocation of production bases, but gains would be small because their countries would also be hurt by the weaker global trade and economy.
By sector and destination, losses in Thai exports would be broad-based while gains would be concentrated in only few destinations
Private consumption growth is slowing following continued declines in confidence and structural problem from high household debt
The private consumption index improved slightly in May (+1.2% YoY and +0.3% mom sa). Spending on services increased led by the tourism sector, while spending on non-durable and durable goods contracted. For the rest of this year, private consumption would continue to be supported by (i) the improving tourism sector following recent measures to stimulate tourist spending in secondary cities in Thailand; (ii) measures to reduce energy bills; (iii) a program to reduce lending rates to help vulnerable groups; and (iv) the end of El Niño (characterized by dry weather) in the middle of this year, which should improve farm output and income. However, the consumer confidence index has dropped for the fourth consecutive month in June to a 9-month low. Coupled with structural issues arising from weaker employment in manufacturing and elevated household debt levels, they will drag consumption growth. As of end-1Q24, household debt stood at THB16.37trn, which is 90.8% of GDP.
Employment and nominal wages in most sectors have risen beyond pre-covid levels, but real wages in major sectors have yet fully recovered, reflecting weak purchasing power
Following the COVID-19 impacts, Thailand has experienced a revival in employment and nominal wages across most sectors, surpassing their pre-pandemic levels by an average of 7% and 8% in 2023. However, real wages in major sectors have yet to fully recover. Specifically, real wages in tourism and trade sectors remained weaker than their pre-pandemic levels by 10% and 3%, respectively. In manufacturing that suffered from structural problems, the sector’s employment was 5% below its pre-covid level, suggesting the impact of structural factors such as lower competitiveness, higher competition, or weaker labor productivity. The latest data (as of May) also indicates that the country’s average nominal wages for the first 5 months of this year was 1.2% less than the same period last year. Overall, key indicators underscore persistent headwinds, particularly the still-weak purchasing power of around 25 million people, representing more than 60% of total workforce.
Digital Wallet: Funds to finance this project adjusted to THB450bn, coming from FY2024 and FY2025 budgets, estimated to contribute 0.5-1.0% to GDP
The sub-committee that oversees the 10,000-Baht digital wallet project met on July 10. Following that, they announced a preliminary plan to reduce the budget for the project from THB500 bn to THB450 bn. They also decided funding would come from the annual budgets for FY2024 and FY2025. Regarding economic impact, this program is expected to stimulate private consumption. The government still expects the program to boost economic growth by 1.2-1.8%. Krungsri Research estimates it would contribute 0.5-1.0% to GDP as (i) there is uncertainty over budget allocation and legal issues. The additional THB122bn budget, by law, cannot be carried forward to FY2025 (which starts in October 2024) right away; (ii) there are lingering concerns over the effectiveness of this program (due to relatively low multiplier effect) and (iii) uncertainty over source of funds for the THB 132.3bn budget allocation for the program. According to a survey, 80% of digital wallet recipients would reduce their regular spending and opt to save money or repay their debts. The impact of this program will also depend on when the project is rolled out and other details.
Headline inflation eased below official target in June, BOT signaled it would keep policy rate at 2.50% this year