Recounting the year 2023 for Thailand’s economy, it is evident that the second quarter saw a palpable deceleration in its recovery trajectory. The Gross Domestic Product (GDP) growth figures reveal a drop from 2.6% in Q1, coming down to a disappointing 1.8% in Q2. The National Economic and Social Development Council of Thailand reported these figures on August 21, sparking concerns when they fell short of predictive consensus estimates of 3.1% and the growth projections of 2.9%. The quarter-on-quarter growth turned out to be a modest 0.2% when adjusted seasonally.
Underpinned by the unexpected and underwhelming statistics, along with the country’s ongoing economic struggles, BMI – an analytical brainchild of Fitch Solutions – adjusted its Thailand forecast for the whole year. From an initial 3.0%, it fell to 2.8%, dipping below both the consensus expectations of 3.6% and the decade distinction of 3.6% from 2010-2019.
Upon closer inspection of the latest figures, several vulnerable areas in the economy become apparent. The government’s consumption experienced an annualized contraction of 4.3% in Q2 due to lingering political uncertainty in the aftermath of the May general elections. Tight credit conditions coupled with dwindling investor sentiment led to a detrimental impact on investment growth, which toppled from 3.1% in Q1 to a mere 0.4% in Q2.
Fortunately, not all was gloomy. The second quarter shone a flicker of hope with net exports contributing positively to the headline growth, attributed largely to a more profound contraction in imports, coming down from 0.9% in Q1 to 2.4% in Q2. However, this silver lining was smaller than hoped, with export growth also stalling, from 2.1% year-on-year in Q1 to 0.7% in Q2.
Looking ahead, the road to Thailand’s economic recovery seems to be riddled with obstacles, in the form of persistent tight credit conditions, political tensions, and external economic factors. The Bank of Thailand (BoT) has augmented its chief policy rate by an aggregate of 175 basis points, since initiating its rate hikes a year ago.
While the recent spike in August concluded the domestic tightening cycle, the shift in the credit cycle has already had a knock-on effect, plummeting credit growth into contraction. With the interest rates anchored at a high of 2.25% for the foreseeable future, the expectation of rate cuts seems bleak until the first half of 2024. Such high borrowing costs are critical for households and business entities.
In Q1 of 2023, Thailand’s household debt-to-GDP ratio buckled under the pressure, standing at 90.6%, – a high figure in comparison with peer economies and strikingly high given Thailand’s relatively lower GDP per capita, recorded at approximately US$8,000.
The scars of political affairs also left a negative mark on growth, with both consumer and business sentiment decelerating in July. The unpredictable Manufacturing Purchasing Managers’ Index (PMI) readings contributed to the unease. Furthermore, the forecast for global economic growth is also predicted to drop from 3.1% in 2022 to 2.4% in 2023, adding further strain onto Thailand’s export sector.
Amidst these economic storm clouds, the country’s tourism industry serves as a beacon of hope for Thailand’s economy. The tourism prospects have considerably brightened and its data continues to be encouraging. The Tourism Authority of Thailand maintains an optimistic stance, predicting an influx of 28-30 million international tourists this year, according to the Bangkok Post.
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