Global: Navigating A Delicate Balance
Global growth is slowest since January with weakness across regions and sectors; policy-easing decisions are complicated by geopolitical tensions
US: Economy is on track for a soft landing with improving services activity; growth and inflation data suggest gradual policy normalization
Eurozone: Slowing growth momentum and cooling inflation provide space for the ECB to cut rates faster this year
Japan: Slowing inflation and modest economic growth support the view that the BOJ’s rate hikes will be gradual
China: Despite new stimulus, economic growth would still be capped by structural headwinds; strong rebound unlikely without large-scale fiscal stimuli
Thailand: Struggling to Align Growth Targets and Economic Stability
Krungsri Research Forecasts for 2024
Key factors in 4Q24: Recovering tourism sector, normalized public spending and stimulus measures will boost economic activity, but structural drags, geopolitical risks and global slowdown could dampen overall growth
Tourism sector: Despite flooding in key tourist provinces, long holidays in China and peak travel season in Europe will provide a boost in 4Q24
Thailand welcomed 2.52 mn foreign tourists in Sep 2024 against 2.96 mn in Aug, marking the lowest this year due to fewer visitors from China and Malaysia after a surge in the previous month. In the first 9 months of this year, tourist arrivals reached 26.1 mn (89% of pre-Covid level vs 71% in 2023) and generated THB 1,219bn receipts (88% of pre-Covid level vs 63% in 2023); Chinese tourists made up the largest group but still are only 62% of the pre-Covid level, while tourists from Malaysia, India, Russia, and Taiwan have surpassed their pre-Covid levels. Looking ahead, some key tourist provinces might be temporarily affected by recent flooding, but there are other positive factors, including long holidays in China (early Oct) and the peak travel season in Europe and the US expected to boost monthly arrivals to about 3 mn per month in 4Q24. Hence, we maintain our forecast for foreign tourist arrivals at 35.6 mn for the full year 2024.
Exports: Improvement in 3Q24 might not be sustainable amid structural manufacturing problems and global economic slowdown
Exports of key industrial products to remain weak because of economic slowdown in the US and China
In the first 8 months of this year, Thai exports grew 4.2% YoY led by agricultural products which expanded by 8.4% (including rice and rubber). Exports of agro-industry products (rubber products, cassava products, and sugar) expanded slightly by 2.4%, and exports of industrial products (computers & components, plastic products) expanded by 4.0%. However, exports of some important industrial goods continued to contract, including cars & parts, electrical appliances, and integrated circuit boards. The economic slowdown in key trading partners, particularly the US and China, could pose risks to future export performance given the relatively high correlation between Thai exports and imports of these countries (0.81 with the US and 0.66 with China.)
Private investment is recovering slowly amid weak business sentiment and industrial production
Business investment remained fragile in 3Q24, as reflected by the weak Private Investment Index in Aug (+3.7% YoY, -3.3% MoM sa) due to slower investment in construction and real estate, as well as still-shrinking new vehicle registrations. Moreover, leading indicators for private investment in the near future reflect still-weak growth: (i) The Business Sentiment Index dropped to a 3-year low of 45.7 in Sep; (ii) Production indicators remained weak in Aug; the Manufacturing Production Index fell (-1.9% YoY, -3.0% MoM sa) and Capacity Utilization rate is below 60% again (58.9% vs 66.7% pre-Covid). Private investment would improve this year but at a slower pace than last year.
Private consumption to get a boost from THB145 bn cash aid for vulnerable group in 4Q24, but flooding and weak confidence could offset the gains
Household spending was sluggish in 3Q24. The Private Consumption Index saw only a mild increase (+0.5% YoY and +0.5% MoM sa in Aug) driven by spending on non-durable goods, especially fuel. Spending on durable and semi-durable goods fell. In 4Q24, private consumption is expected to be boosted by the THB10,000 aid for vulnerable groups (total budget THB 145 bn) but growth could be limited. The positive impact of this measure could be offset by flooding in several provinces which has harmed agricultural output and dampened consumer confidence for the seventh consecutive month in Sep, to a 14-month low of 55.3. There is also a headwind from high household debt, although that has dropped to less than 90% of GDP at the end of 2Q24.
Thai household debt slowed to 89.6% in 2Q24, but weaker loan quality is a threat to economic growth
Thailand's household debt grew only 1.3% YoY in 2Q24. Despite slowing from a peak of 95.5% in 1Q21 and 90.7% in 1Q24, the household debt-to-GDP ratio remained high at 89.6% in 2Q24 compared to 84.1% in 4Q19 (pre-Covid period). Auto loans fell (-5.1% YoY), while real estate loans and credit card & personal loans decelerated. In terms of debt quality, non-performing loans (NPLs) at Thai commercial banks' stood at THB 511.2 bn in 2Q24, accounting for 2.78% of total loans vs 2.66% at end-2023. NPL for consumer loans, especially credit cards, increased from 3.57% of total loans at end- 2023 to 4.43% at end-2Q24. Real estate NPLs rose from 3.34% to 3.71% in the same period. Auto loan NPL only inched up from 2.13% to 2.26% but could accelerate in the next period. This is reflected in the Significant Increase in Credit Risk (SICR or Stage 2) group, which reached a new high of 15.09% of total loans at end-2Q24 from 14.39% at end-2023.
Public spending will improve, driven by accelerated disbursement of the capital budget
Preliminary data from the Ministry of Finance indicate disbursement of the current budget had increased by 29.4% YoY in Sep and disbursement of the capital budget had surged by 63.7%. In FY2024 (Oct 2023 to Sep 2024), disbursement of the current budget reached THB 2.71 trn or 98.5% of the annual budget, rising 3.9% YoY. For the capital budget, the government has disbursed THB 0.44 trn or only 61.7% of the annual budget, falling -7.0% YoY. Despite slowing disbursements (especially the capital budget) in the last quarter of FY2024 (Jul-Sep 2024), we expect the public spending to continue to improve in the first quarter of FY2025 (Oct-Dec 2024). This will be supported by a significantly higher investment budget for FY2025, which increased by 26.5% from the previous fiscal year to THB 0.91 trn, equivalent to 24.3% of the total budget (THB 3.75 trn).
We expect THB145 bn cash aid for vulnerable group to lift GDP by 0.2%-0.3% but recent flooding could offset the gains
Headline inflation is rising slowly and projected to return to the target range later this year, project inflation to average 0.5% this year
Policy interest rate: MPC delivered a surprise 25 bps cut with a 5:2 vote; we expect BOT to adopt a wait-and-see stance for further rate cuts