Monthly Economic Bulletin (February 2024)

Global: Lower probability of recession but there are lingering risks

IMF upgrades global growth forecast, says moderating inflation and steady growth open path to a soft landing but its forecast remains below historical average

The IMF forecasts the global economy would grow by 3.1% in 2024 and inch-up to 3.2% in 2025. 2024 growth is 0.2 ppt higher that its previous projections last October, reflecting upgrades for China, the US, and large emerging market and developing economies. However, global growth forecasts for 2024 and 2025 are below historical (2000–19) annual average of 3.8%, reflecting restrictive monetary policies, withdrawal of fiscal support, and low underlying productivity growth. There are still lingering adverse risks to global growth, led by risk of commodity price spikes amid geopolitical and weather shocks. The Gaza-Israel conflict could escalate to the wider region, which produces about 35% of the world’s oil exports and 14% of gas exports. Continued attacks in the Red Sea and the ongoing war in Ukraine risk generating fresh adverse supply shocks to global recovery, with spikes in food, energy, and transportation costs.

Global services activity continues to grow; shrinking manufacturing activity and restrictive monetary policy could ease inflation despite concerns over Red Sea disruption

 

US: Strong economic growth and slow drop in inflation have moved expectations of Fed rate cuts to the middle of this year

 

Eurozone narrowly avoids a recession, but the economy is at risk of Stagnation, dragged by high credit cost, weak exports, and unwinding of fiscal stimulus

 

Japan: Surprise recession in 4Q23 muddles BOJ’s pivot plan, but upcoming wage hike remains key factor to ending negative interest rate policy by mid-year

 

China: Economy shows sign of mild recovery and possibly easing deflation, but recovery remains vulnerable and recent PBOC measures would have limited impact

 

Thailand: Discouraging 4Q23 GDP data and weaker-than-expected growth momentum prompted us to revise down 2024 economic forecast

Krungsri Research Forecasts for 2024

 

Thailand: 4Q23 GDP came out weaker-than-expected at -0.6% QoQ, +1.7% YoY; 2023 growth slowed to 1.9% from 2.5% in 2022; We cut our 2024 GDP growth forecast to 2.7%

2024 Thai economic outlook: Lagged cyclical recovery with uneven and uncertain growth

 

Tourism remains a key economic driver with China arrivals at new highs since the pandemic but still below 50% of pre-covid level; tourist spending per trip is disappointing

In January, Thailand welcomed over 3 million foreign tourists for the second consecutive month, accounting for 82% of pre-Covid (January 2019) level and generating 148 billion baht in revenue. Chinese tourists led the count with the number surpassing 500,000, the highest since the pandemic, but recovery is slow as that is only 48% of pre-pandemic level. In contrast, tourists from Malaysia, South Korea, India, and Russia, though smaller in numbers, have recovered to near or exceeded pre-pandemic levels (at 82-118% of pre-covid level). We expect China arrivals to continue to improve in February because of the Lunar New Year holiday period, coupled with support from the visa-free measure between Thailand and China. However, despite total arrivals improving, the expense per trip is lower than before. That could reflect a change in the structure of tourism receipts.

 

Private consumption to expand moderately supported by growing services sector, recovering tourism and rising employment, but headwinds would limit upside

Private consumption could slow down in 2024 following unusually-strong growth in 2023 (release of pent-up demand after country reopening). But, it is expected to register moderate growth, supported by (i)  recovering tourism activity and services sectors; (ii) rising consumer confidence, and (iii) a stronger labor market. There is also support from government measures in 2024 such as energy bill subsidies, Easy E-Receipt and Tax Refund schemes and temporary suspension of debt repayment for farmers. However, there are several headwinds ahead, including high household debt, high interest rates, and drought impact on agricultural products and farm incomes.

Savings (bank deposits) exceeds pre-covid trend by over THB800bn (4.9% of GDP) but excess deposits of lower- and middle-income groups have dropped substantially

Total outstanding bank deposits reached THB17.03 trn at end-2023, rising 0.8% from the previous year and exceeding THB14.1 trn at end-2019 (pre-pandemic period). There was THB 843 bn excess deposits, accounting for 4.9% of GDP. Most of the excess savings are in deposit with outstanding balance of THB1-10 mn per account and amounting to THB 547 bn (3.1% of GDP), implying high purchasing power for middle- and upper-income earners. This excess deposits would allow certain household groups to increase spending but the number of deposit accounts in these groups (over 500,000-baht per account) is less than 4 million, which is low relative to Thailand’s 70 million population. Additionally, most of the low- and middle-income groups (below 500,000-baht per account) have run down their savings and might still struggle with spending ahead
 

Export growth: Mild and patchy recovery amid external uncertainties; we expect Thai exports to grow by 2.5% in 2024 vs -1.7% in 2023

Exports will recover along with the global economy and easing supply chain disruptions, but Thailand’s weak manufacturing sector and geopolitical tensions will limit recovery

Thai exports have improved, in line with Asian export trends, attributed to easing supply chain disruptions, concerns over food security, and recovering demand for electrical and electronic products. However, Thailand's manufacturing sector remains weak with the Purchasing Managers' Index in contraction territory (below-50) for the sixth consecutive month in January, although it improved from the previous month. It was the lowest compared to the other 4 major countries in ASEAN. Additionally, risks arising from geopolitical tensions could drive up transportation costs for exports.

Rising geopolitical risks and Red Sea tensions could lead to higher transportation cost, trade diversion, inflationary pressure, and even global supply chain disruption

Private investment: Delicate recovery as exports and manufacturing slowly regain strength; public investment will provide support starting from Q2

Business sentiment weakened in January, mainly in the trade sector, following an acceleration during the year-end festive season. However, there are positive signs of support for investment in the next period, including (i) applications for Board of Investment (BOI) investment incentives reached 848 bn baht in 2023, the highest in 5 years and an increase of 43% YoY. This was led by electrical appliances, electronics, automotive & parts, agriculture & food; (ii) measures to promote investments in target sectors, including the EV (electric vehicle) industry upgrade Phase 2 (EV 3.5) over 2024-2027 and (iii) accelerating infrastructure investment after the FY2024 annual Budget Bill takes effect in 2Q24. Premised on these, private investment would improve from 2Q24 onwards.

Manufacturing production to see mild improvement supported by recovering tourism sector and modest growth in global demand

In 2023, overall manufacturing production shrank significantly by 5.1% and capacity utilization rate tumbled from the pre-Covid level (2016-2019) average, attributed to slow recovery of the domestic economy and weak foreign demand. For 2024, we anticipate a mild improvement in industrial production driven by improving exports and private investment amid the global economic recovery, along with domestic activities bolstered by strong growth of the tourism sector. However, manufacturing production growth would still be limited by structural problems, including lower competitiveness in some key industries.
 

Supply side: Recovery remains uneven in both services and manufacturing sectors

• In 2023, several industries in the services sector have recovered above pre-Covid levels and registered positive year-on-year growth, including Information & Communication, Professional Scientific & Technical, Financial and Insurance, Wholesale & Retail Trade, Public Admin & Defense and Administrative & Support Services. Their combined output accounted for 37.6% of GDP. Manufacturing industries in the same classification include Petroleum (2.7% of GDP).

• Manufacturing and services industries that have recovered above pre-Covid levels but registered negative growth include IC & Semiconductors (1.6% of GDP) and Real Estate Activities (4.0%).

• Services industries that remained weaker than pre-pandemic levels but registered improvements include  Accommodation & Food Service (6.6%) and Transportation & Storage (6.9%).

• owever, most manufacturing industries remained weaker than pre-covid levels and registered negative growth, including Automotive, Electrical Appliance, Food & Beverages, Cement & Construction, Rubber & Plastic, Chemicals, HDD and Textile & Apparel. Output of those industries account for a combined 19.4% of GDP.

Headline inflation will remain low in 2024 partly due to government subsidy measures; easing prices still not broad-based

 

Weaker-than-expected growth momentum implies greater probability of MPC’s first policy rate cut in the middle of this year