During the second quarter of 2023, Thailand witnessed a deceleration in its economic rebound, with the GDP growth slipping from a 2.6% year-on-year increase in Q1 to just 1.8%. This report, released by the National Economic and Social Development Council on August 21, significantly missed the consensus forecast of 3.1% and anticipated growth of 2.9%. Post seasonal adjustments, the quarter’s economic growth merely nudged 0.2%.
This sluggish performance and persistent economic challenges led BMI, a venture by Fitch Solutions, to scale back its annual growth prediction for the current year from 3.0% to 2.8%. This is notably lower than the consensus forecast of 3.6% and the 3.6% average recorded between the years 2010 and 2019.
To highlight a few weak spots in the economy, government consumption suffered a 4.3% annual contraction in the second quarter, primarily due to prolonged political instability post the May general elections. Tight credit conditions and waning investor confidence further compounded the situation, causing the investment growth to nosedive from 3.1% year-on-year in Q1 to a dismal 0.4% in Q2.
On the bright side, net exports positively influenced the headline growth, primarily owing to a steeper contraction in imports, which declined from 0.9% in Q1 to 2.4% in Q2. However, export growth also slackened, moving from 2.1% year-on-year in the first quarter to a dismal 0.7% in the adjacent quarter.
Looking at the road ahead, Thailand’s economic recovery appears quite fragile, given the persistent tight credit scenarios, political instability, and external headwinds. The Bank of Thailand (BoT) has already tightened its key policy rate by an aggregate of 175 basis points over the past year. Although the most recent surge in August is speculated to culminate the domestic tightening cycle, credit growth has already turned negative. Moreover, interest rates, now grasping a nine-year high of 2.25%, will remain elevated for a considerable period, further inhibiting credit growth. The rate cuts are only expected to appear in the first half of 2024. Such high borrowing costs are likely to weigh on households and businesses.
During 2023’s first quarter, the household debt-to-GDP ratio necked at 90.6%, comparatively higher to its peers, and substantial considering Thailand’s overall lower GDP per capita of around US$8,000. Political developments too have impeded growth. Both consumer and business confidence took a hit in July, negatively affecting the business activities. Manufacturing Purchasing Managers’ Index (PMI) readings have been highly erratic.
Last, we project the global economic growth to slacken from 3.1% in 2022 to 2.4% in 2023, which would inevitably hamper Thailand’s export performance. Despite these challenges, the nation’s tourism industry is anticipated to contributes towards growth. The tourism outlook has significantly brightened, and the aggregate data remains supportive. The Tourism Authority of Thailand holds an optimistic view, expecting around 28-30 million international visitors this year, as reported by the Bangkok Post.
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