Monthly Economic Bulletin (April 2024)

Global: Marginal and Cautious Improvement

IMF inched up 2024 global growth forecast to 3.2%, still below historical average, while warning a cautious outlook amid inflation concern and geopolitical risk

The IMF has slightly revised up 2024 global economic growth projection by 0.1 percentage point to 3.2%, reflecting upgrades for the US and some large emerging markets. The latest 2024 global growth forecast is the same pace as in 2023 but remains below the historical (2000-2019) annual average of 3.8%, owing to near-term factors, such as still-high borrowing costs and withdrawal of fiscal support, and longer-term effects from the Covid-19 pandemic and Russia’s invasion of Ukraine; weak growth in productivity; and increasing geoeconomic fragmentation. In addition, the IMF’s latest forecast of global growth five years from now – at 3.1% -- is at its lowest in decades. Downside risks could stem from rising geopolitical tensions, high interest rates, China’s troubled property sector, high government debt and intensifying geoeconomic fragmentation.

Global manufacturing and services activities to pick up in the near team supported by favorable supply conditions and higher real income; disinflation trend slows down

US: Firmer-than-expected growth and inflation keeps Fed cautious in introducing rate cuts, but a slower economy and easing wage growth suggest policy easing this year

Eurozone: Economy could stagnate in 1H24 amid softer inflation, suggesting the ECB might cut interest rates at June meeting

Japan: Despite ending negative interest-rate policy, BOJ should keep accommodative stance as price pressures are not strong enough to require aggressive rate hikes

China: Economy reveals glimpses of sunshine but real estate continues to cast shadows, posing further risks of spillover into the financial sector

Thailand: A growing but cautious hope for economic recovery

Krungsri Research Forecasts for 2024

Tourism sector remains the major hope to drive economic recovery but the sector’s growth could slow during low season in 2Q24; tourist arrivals reached 87% of pre-pandemic level in 1Q24

In March, Thailand welcomed 2.98 million foreign tourists, falling below 3 million for the first time in four months after the Chinese New Year festival ended in February. In the first quarter of this year, tourist arrivals reached 9.37 million (87% of pre-Covid level) and generated THB455 bn receipts (88% of pre-Covid level vs 63% in 2023), led by Chinese tourists, which made up the largest group but was still only 56% of pre-Covid level. Tourists from Malaysia, Russia, South Korea, and India surged to 101-128% of pre-pandemic levels. While arrivals could see a mild drop in the second quarter due to low season, there is support from Songkran Festival in April which is expected to draw tourists from ASEAN countries. We are keeping our forecast for foreign tourist arrivals to reach 35.6 million in 2024.

Public investment is expected to accelerate this year and lead to crowding-in effect on the economy  

Data from the Ministry of Finance on budget disbursements show that in the first half of 2024 fiscal year (October 2023 to March 2024), spending of the current budget reached THB 1.39trn or 55% of the year’s total current budget. This is 4.8% lower than the previous fiscal year. For the capital budget, only THB 0.092trn has been earmarked for public investments, or 13.8% of the total capital budget vs 60.4% in the previous fiscal year. However, FY2024 budget bill would be passed in April, which means disbursements, especially for public projects, will rise the rest of this year. The crowding-in effect from private-sector investment should then help to improve economic growth.

Government recently announced a second minimum wage hike, a program to stimulate real estate sector, and clarified funding sources for Digital Wallet program

There is a growing but cautious hope that approval for FY2024 budget bill and progress in stimulus programs would create new forces to encourage greater public and private spending later this year.

Digital Wallet: PM revealed a change in funding sources worth THB500bn, but pending final details

Digital Wallet raises hopes of stronger private spending in 4Q24, but consumption will remain cautious given lingering uncertainty over the program and its effectiveness

Private consumption: Be wary of payback effects after near-term stimulus measures end and shrinking farm income along with anticipated smaller output

In February, private consumption grew 2.1% YoY, and when adjusting for seasonal factors, it recorded near-zero month-on-month growth. Spending on services and non-durable goods was partly supported by government measures, including subsidies for energy costs and a tax rebate program. Meanwhile, spending on durable goods fell, especially in passenger car category. Consumption was also pressured as farm income in the first 2 months of this year continued to contract mainly due to smaller farm output, as farm prices have risen. In the next period, consumption would be bolstered by (i) recovering tourism activity, and (ii) second round of minimum wage hike to 400 baht per day for selected groups in 10 provinces. Meanwhile, there are headwinds from (i) potentially weaker farm incomes due to lower agricultural output, (ii) weaker confidence, and  (ii) high household debt level (91.3% of GDP at end 2023).

Thai household debt surged to 91.3% of GDP in 4Q23; high debt level, high DSCR, and deteriorating loan quality suggest looming threat to economic growth

Thailand's household debt remained high at 91.3% of GDP in 4Q23, despite falling slowly from the peak of 95.5% in 1Q21. Loans for consumption, particularly credit card and personal loans (+9.5% YoY) and real estate purchases (+4.3% YoY) led the increase. The Debt-Service Coverage Ratio (DSCR) has improved from pre-Covid period but the low-income group (especially those with monthly income below THB 10,000) continued to struggle to repay debts. In terms of debt quality, non-performing loans (NPLs) at Thai commercial banks' stood at THB 492.8 billion in 4Q23, accounting for 2.66% of total loans compared to 2.9% at end-2019. NPLs for consumer loans, particularly auto loans, increased from 1.86% of total loans at end-2019 to 2.13% at end-4Q23, and is likely to rise further given the surge in the ratio of auto loans with a significant increase in credit risk (SICR or stage 2) since pre-Covid period to 14.3% of total loan at end-4Q23.

Despite hopes for a rebound in public investment and stronger FDI, private investment growth could be limited by weak exports

Private investment was flat YoY in February, but after adjusting for seasonality, it improved by 0.8% MoM due to stronger investment in machinery & equipment following imports of capital goods. Private investment remained weak following the recent drop in business sentiment, but there are still positive signs: (i) Ministry of Commerce data show 54 FDI applications in January 2024 with a total investment value of THB7,171 mn (+39.8% YoY), and (ii) expect public sector investment to accelerate this year and lead to crowding-in effect of private investment in the next period. In addition, latest measures to stimulate the economy through the real estate sector and related sectors along the supply chains could encourage greater domestic investment.

Export recovery remains fragile amid structural problems, including weaker competitiveness in several Thai industries

Thai export growth has been concentrated in low-value-added products, pressured by a weak manufacturing sector

In the first two months of this year, Thai exports rose by 6.7% YoY led by a 10.7% increase in orders for agricultural products (including rice and rubber) and a 7.7% increase in industrial product (including computers & parts), but was capped by a 3.5% decline in exports of agro-industrial products (including rubber products and tapioca products). However, despite a stronger export sector in many Asian countries due to improving global manufacturing trends, rising demand for electronic products, and easing disruptions to global supply chains, Thai exports have been concentrated in low-value-added products. Thailand's manufacturing sector remains weak compared to global production trends. This could reflect structural problems in Thai exports.

Productivity-wage gap has narrowed after pandemic, making it more challenging for firms to lift performance despite recent improvements

Prior to the pandemic, average labor productivity had increased by 4.2%, in stark contrast to only 1% growth in average real wages. The widening productivity-wage gap partly reflects gains from increased efficiency in production, which could lead to higher profitability. But since the pandemic, nationwide labor productivity growth has tumbled to -1.6%, while real wage growth is near-zero. This suggests a much narrower productivity-wage gap, at -1.6% compared to 3.2% pre-Covid. The sluggish growth in real wage could also be mirrored by the mild differences in inflation rate and minimum wage growth during 2014-2023.

Most manufacturing sectors are seeing negative labor productivity-wage gap, posing risks to their profitability, growth, and investment

Several services sectors could benefit from the positive productivity-wage gap in the near-term as real wages have increased relatively slowly. Meanwhile, the longer outlook of productivity-wage gap depends on firms’ ability to maintain production (or productivity) with rising wages. Most manufacturing sectors show signs of vulnerability as their labor productivity has declined and real wages have risen steadily. If productivity continues to drop, the productivity-wage gap would likely remain negative, implying higher costs or lower profits for businesses in many manufacturing sectors.

Headline inflation could return to positive territory in Q2 while core inflation would soften, reflecting weaker domestic demand

MPC might deliver two rate cuts this year amid uncertainty over Thai economy, positive real interest rates, the Fed possibly easing monetary policy in 2H24, and slower growth trend.