The economic progress of Thailand experienced a setback in the second quarter of 2023, with a reported decline in GDP growth from 2.6% to 1.8% on a year-on-year basis. This data, released on August 21 by the National Economic and Social Development Council, fell short of the general consensus of 3.1% and the projected growth of 2.9%. The numbers also reflected a modest growth of 0.2% quarter-on-quarter when adjusted seasonally.
As a consequence of these subpar figures and persisting economic adversities, the BMI – a company under the umbrella of Fitch Solutions – altered its forecast for the full-year growth, declining from 3.0% to 2.8%, which is below the 3.6% consensus expectation and the average marked between 2010-19.
An in-depth review of these recent statistics presents several fragile areas in the country’s economic landscape. Government expenditure witnessed a 4.3% annualized depletion in the second quarter, primarily due to uncertainties in politics following the general elections held in May. Furthermore, reduced credit conditions and dipping investor confidence led to an immense decline in the growth of investments, dropping from 3.1% in the first quarter to a mere 0.4% in the second.
In contrast, net exports positively impacted the headline growth, largely propelled by a more significant contraction in imports, descending from 0.9% in the first quarter to 2.4% in the second. Despite this, the growth of exports also experienced a decline from 2.1% in the first quarter to 0.7% in the second.
Looking towards the future, it seems that the resurgence of Thailand’s economy might be tepid, considering the prevailing tight credit conditions, political uncertainties, and external hindrances. The continuous stress on domestic activities due to tight credit conditions will persist. The Bank of Thailand (BoT) has already elevated its main policy rate by a whopping 175 basis points since the initiation of its hiking cycle over a year ago.
On the other hand, experts believe that the last hike in August marked the end of the domestic tightening spurt. However, the credit cycle has already turned, indicating credit growth in a state of recession. Moreover, high-interest rates persisting at a highest in nine-years rate of 2.25% will likely continue to hamper credit growth.
The elevated borrowing costs also pose challenges to households and businesses alike. In the first quarter of 2023, the household debt-to-GDP ratio was positioned at 90.6%, a figure notably high in comparison to peer countries and elevated considering Thailand’s comparatively lower GDP per capita, which stands around US$8,000.
In addition, political shifts also seem to hinder growth. With both consumer and business sentiment dipping in July, there was a noticeable knock-on effect on business activities. Manufacturing purchasing managers’ index (PMI) readings displayed noticeable volatility.
Overall, global economic growth is predicted to decline from 3.1% in 2022 to 2.4% in 2023, which overcasts Thailand’s export performance. Despite these obstacles, Thailand’s tourism sector shows promising signs of bolstering growth. The outlook for tourism brightens considerably as monthly data comes in supportive, adds excitement to the Tourism Authority of Thailand’s expectations of 28-30 million international visitors this year, according to reports by the Bangkok Post.
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