Monthly Economic Bulletin (SPECIAL EDITION)

2024 Recap: Lagged cyclical recovery with fragile and uneven growth amid domestic political uncertainty

• We estimate the Thai economy would expand by 2.7% in 2024, improving from 1.9% in 2023. This would be driven by a stronger recovery in the tourism sector and continued domestic spending, further supported by year-end stimulus measures targeting vulnerable groups. Additionally, export growth is expected to turn positive, aided by the cyclical recovery in the electronics sector. However, private investment is projected to contract due domestic political uncertainty, delays in public investment, and structural problems in the manufacturing sector.

• The tourism sector has continued to improve and remained a key driver of the economy. Foreign tourist arrivals have been rising steadily, supported by visa-free program for over 90 countries, along with more flight routes and greater flight frequency. As a result, tourist arrivals are projected to reach 35.6 million in 2024, up from 28.2 million in 2023.

• Private consumption is expected to grow by 4.8% in 2024, slowing from 7.1% in 2023, driven by the recovering tourism sector and rising employment. This is further supported by government measures to reduce living costs and aid for vulnerable groups, such as the THB 10,000 cash distribution program implemented at the end of the year.

• Public spending has taken on a greater role in driving the economy since mid-2024, following significant disruptions in the first half due to delays in enacting the FY2024 Budget Act.

• Exports are expected to accelerate to +3.9% in 2024, recovering from -1.5% in 2023. This would be supported by specific factors, including cyclical recovery in electronics sector and higher demand for products benefiting from growth in the global services sector, including agriculture and food products.

• Private investment is projected to contract by 1.5% in 2024, reversing from 3.2% growth in 2023, due to concerns over policy continuity and delayed public spending after an unexpected change in the Prime Minister. Additionally, manufacturing production has also weakened because of structural problems and declining competitiveness.

• The Monetary Policy Committee (MPC) cut policy interest rate once in late Q3, from 2.50% to 2.25%, to support economic recovery and ease household debt burden without disrupting the debt reduction process amid slowing credit growth. Meanwhile, inflation rate is projected to fall below the target range of 1-3% in 2024, from 1.2% in 2023 to 0.4% in 2024.

2025 outlook: Normalized growth and a temporary rebound amid structural headwinds and policy uncertainty

• The Thai economy is on track to achieve normalized growth next year, estimated at 2.9%, driven by higher government spending and a record-high budget deficit at 4.5% of GDP, alongside recovering tourism activity to pre-pandemic levels. However, the growth momentum would be capped by domestic and external headwinds, such as high household debt and uncertainty over US trade policy.

• Normalized public spending will provide a transitory boost to overall economic growth in 2025. Public investment is projected to accelerate to 5.8% in 2025, driven by a 26.5% increase in FY2025 capital budget.

• Private investment is expected to rebound moderately, rise by 2.9% in 2025, supported by accelerated public investment and the relocation of production bases in certain industries. However, growth would remain constrained by structural challenges in key industrial sectors.

• Tourism activity is on track to recover to pre-pandemic levels, with international tourist arrivals expected to reach 40 million in 2025 driven by rising demand, increased supply, and visa-waiver programs.

• Private consumption is expected to expand by 3.0%, approaching normal levels and close to overall economic growth. While stimulus measures will support consumption, its expansion might be limited by high household debt and a possible decline in agricultural product prices.

• Exports are expected to grow at a moderate pace of 2.7% in 2025, supported by (i) a gradual global economic recovery, (ii) increasing demand in the electronics sector driven by the expanding digital economy, and (iii) expansion in the tourism and services sectors, which will boost exports of related goods such as food, beverage, and agricultural products. However, exports will continue to face challenges from structural issues and trade tensions between the U.S. and China, both of which are Thailand’s key trading partners.

• Krungsri Research expects the MPC to cut policy rate to 2.0% by 1Q25, to ease financial strain and nurture economic recovery. Headline inflation is projected to rise to 1.0% in 2025, given improving domestic demand through private consumption, tourism, and government spending.

• Risks & Challenges: (i) Escalating trade tensions, uncertainty over US policies, and geopolitical risk; (ii) influx of Chinese imports; (iii) extreme climate change (risk of La Niña); (iv) structural problems such as high household debt and weaker competitiveness; and (v) policy uncertainty and political risk in Thailand.

Krungsri Research Forecasts for 2024-2025

Thailand's economy is experiencing uneven recovery driven by tourism and domestic consumption, but recovery has started to be more balanced since 3Q24

Thailand's economic growth is returning to 2010-2023 average level, but momentum might not be sustainable

Tourism sector  recovered strongly in 2024 and will remain the key driver of Thailand’s economy in 2025 supported by visa-free program

Services sector continued to grow, especially tourism and related industries; other sub-sectors weakened

In 2024, exports were mainly driven by specific factors, especially recovering demand for electronics products; might face challenges from uncertain US trade policy in 2025

 

Exports grew only to some major markets, such as the US, EU, and CLMV; imports improved, driven by demand for capital goods, particularly computers, parts & accessories, and consumer goods

Manufacturing production is projected to remain weak, but some industries are seeing growth driven by recovering tourism activity

Capacity utilization rates remain low in several industries, in line with weak manufacturing production

FDI slowed in 1H24 but could improve following clearer domestic political direction in 2H; latest FDI led by Beverage, Machinery & Equipment, and Transportation & Storage

Domestic economy: Recovery is slow amid weak confidence; Private consumption mainly driven by services sector, spending on durable goods contracted; Private investment has been sluggish due to structural issues and domestic political uncertainty

Overall employment conditions are improving but at different pace across sectors

Non-farm income in manufacturing sector is falling, while income in other sectors is recovering slowly

Farm income is projected to dip slightly in 2025 along with lower farm prices, despite improving output due to higher water levels following La Niña

Inflation should remain low in 2024 at 0.4%; projected to rise towards target range (1-3%) in 1H25, full-year average to be closer to lower end of range

Bank lending has declined due to slow recovery in income, high debt burden at SMEs and households, as well as structural issues and lower competitiveness in certain businesses

External stability remains sound with high foreign reserves; recovering tourism activity to further support the current account surplus

Debt levels remain high: Public debt could rise following more stimulus measures, but household debt burden could ease temporarily with Khun Soo, Rao Chuay (You Fight, We Help) debt relief program