Global: Ongoing debate over future policy directions
Global data suggest further weakness ahead despite the slight improvement at end-2023; mild expansion in services sector to be offset by shrinking manufacturing activity
Despite recent rise in shipping costs, improving supply chain conditions and softer labor demand could slow inflation and allow central banks to unwind policy tightening
US: Expectations of a soft-landing amid stronger-than-expected growth and inflation prospects suggest the Fed might not cut rates rapidly
Eurozone: Rising risk of a recession amid worsening economic data, but it would be less severe than anticipated as there is no longer an energy crisis
Japan: Weaker economic data have increased recession risk; harder to abolish negative interest rate policy in Q1 this year after the recent earthquake
China: Economic recovery remains slow dragged by slump in property sector; Taiwan unlikely to shift its cross-strait policy following the election
Thailand: Tourism sector and private spending to drive growth in early 2024
Krungsri Research Forecasts for 2023-2024
2024 Thai economic outlook: Lagged cyclical recovery with uneven and uncertain growth
Tourism sector: Positive momentum to continue into this year; China and Thailand agreed to a permanent visa-free policy effective March
In December 2023, Thailand welcomed 3.2mn foreign arrivals, the highest monthly total since the country reopened. This took total arrivals to over 28m in 2023 (72% of pre-Covid level), up sharply from 11.2mn in 2022, and generated THB1.2 trn receipts (63% of pre-Covid level). Arrivals from Malaysia, Russia, South Korea and India reached 82-108% of pre-pandemic levels. Chinese tourists are returning slowly, at only 32% of pre-Covid level. We expect the positive momentum to continue into 2024, and the recent agreement between the Thai and Chinese governments to allow visa-free travel for citizens of the two countries will boost Thailand-China tourism industry. This agreement is expected to come into force on 1 March, 2024, after the temporary visa-free scheme for Chinese arrivals expires at the end of February. The new visa regulations will attract more Chinese tourists to Thailand. Hence, we estimate foreign tourist arrivals will reach 35.6mn in 2024 (89% of pre-Covid level).
Private consumption will benefit from stimulus measures, recovering tourism activity, and strong employment
In November 2023, the Private Consumption Index rose 7.4% YoY and 0.8% MoM, driven by (i) rising spending on services following higher foreign tourist arrivals; and (ii) spending on non-durable goods, supported by measures to reduce household energy bills. In early 2024, we expect purchasing power to improve, supported by rising consumer confidence, continued recovery in the tourism sector, higher employment, measures to boost spending via Easy-E-Receipt program (personal income tax deduction for spending on eligible goods or services worth up to THB 50,000, valid from 1 January to 15 February this year), and measures to reduce household energy bills.
High household debt could cap consumption; government is committed to help debtors
Household debt stood at THB16.2 trillion at the end of 3Q 2023, an increase of 3.3% YoY. The ratio of household debt to GDP remained high at 90.9% compared to 90.8% in the previous quarter, led by consumer loans. However, household debt has become a structural problem that authorities are trying to resolve. This prompted the BOT to introduce the “Responsible Lending” guideline which will be effective from January 1, 2024. The government also recently announced guidelines to try to resolve debt in the entire system and has made that a national agenda.
Digital Wallet scheme: Council of State has warned borrowing to fund the scheme must comply strictly with the law, implying policy uncertainty ahead
This is a key stimulus which will give THB10,000 in digital money to Thai nationals aged 16 and older who earn less than THB70,000 per month or have less than THB500,000 in bank deposits. This program is expected to benefit an estimated 50 million people and cost the government THB500 bn. It has been through the Office of the Council of State which warned borrowing to fund the program must comply with the prevailing laws. It is now uncertain how the Digital Wallet Committee will respond to the Council of State’s comment. In addition, the legislation required for the additional borrowing needs to be reviewed by the MPs and senators, and potentially considered by the Constitutional Court.
Private investment: To be boosted by stronger services activity and public spending (from Q2), but constrained by external challenges and sluggish manufacturing growth
Private investment is projected to improve in 2024, supported by (i) recovering tourism and domestic activities, reflected by rising Services Production Index (SPI); (ii) measures to boost investment in targeted industries, such as initiatives to enhance the EV (electric vehicle) industry in Phase II (EV 3.5) in 2024-2027; and (iii) accelerating infrastructure investment, covering both existing and new projects which could start after the annual Budget Bill is approved in Q2. The Ministry of Transport plans to push infrastructure investment in 7 projects in 2024, with a total investment of over THB133 bn. They include the Red Line electric train extension, expressway project (Kathu-Patong) in Phuket Province, Intercity Motorway Project No. 5 (M5), Uttaraphimuk (section of Rangsit-Bang Pa-in) and Intercity Motorway No. 9 (M9) Western Bangkok Outer Ring Road (Bang Khun Thian - Bang Bua Thong). However, parts of the private investment could be capped by weak business sentiment and sluggish industrial production influenced by slow global manufacturing activity.
Export growth: Mild recovery amid external uncertainties; we expect exports to grow by 2.5% in 2024 vs -1.5% in 2023
Exports will receive a boost from easing supply chain disruptions and specific factors, weak global demand and geopolitical tensions will remain headwinds
Exports continued to expand towards the end of 2023 driven by both rising product prices and expanding export volumes. The improvement in Thai exports is in line with export trends in many Asian countries. This was driven partly by easing supply chain disruptions, food security, and cyclical recovery in demand for electrical & electronic products. However, still-weak global demand would limit export growth and risks of wider geopolitical tensions could push up transportation costs for exports.
Inflation could still be negative in early 2024 but rise later towards BOT’s target range
BOT’s latest views on further economic recovery and temporary drop in inflation with targeted measures for fragile groups suggest it might keep policy rate at 2.50%
Key factors in 2024: Growth would be fueled by stronger recovery in tourism activity and higher public spending, but impact could be capped by drought, debt, and external risks