Monthly Economic Bulletin (September 2024)

Global: Rate cuts take center stage as economic data start to slow down

 

More uneven growth across regions and sectors; global manufacturing at an 8-month low with a drop in new orders; easing inflation would prompt policy easing

US: Fed kicks off easing cycle with a 50bps cut; Economy is facing a soft landing rather than slipping into recession; Still-high underlying inflation suggest gradual rate cuts ahead

Eurozone: Economy is recovering but shrinking manufacturing activity, relatively high financial costs, and geopolitical risks, would remain a challenge to growth

Japan: BOJ might raise interest rates once more the rest of this year to maintain financial market stability while supporting continued economic growth

China: Major economic engines are losing steam while structural challenges and external risks continue to cast a long shadow, which could continue to rein in growth

Thailand: Stimulus spark hope, floods cast shadows

• Krungsri Research is keeping the 2024 GDP growth forecast at 2.4%. Gains from the government’s cash transfer program to the vulnerable group could be largely offset by the impact of the flood throughout the country.

• The current government may introduce some adjustments to the actual policy implementations. One example is the planned revisions to the Digital Wallet scheme. For the program Phase 1, they will make the cash transfer to vulnerable groups by the end of September, which would boost consumption and the overall economy in Q4. Details of Phase 2 are still pending. Public spending would normalize after the FY2025 budget bill proceeds as scheduled.

• Flood impact could dampen growth later this year. However, we estimate that the losses would be less severe than that caused by the 2011 Great Flood.

• Despite strong exports in July, there are lingering headwinds from slowing economies in major countries and structural problems in Thailand. Full-year export growth will remain low. The recovery in the electronics sector and growing agricultural exports will drive overall export growth, but exports of key industrial products will continue to drop.

• The tourism sector showed positive signs with a rising number of Chinese tourists ahead of the high season. Total foreign visitor arrivals are expected to reach 35.6 mn this year.

• Headline inflation eased to a 4-month low in August but would likely bounce back to the BOT’s target range in Q4.

• MPC is expected to keep policy rate unchanged this year, but rate cuts are possible in 2025.

Krungsri Research Forecasts: We maintain 2024 GDP growth at 2.4%; gains triggered by digital wallet Phase 1 would be largely offset by flood impact

New government’s policies: Adjustment to digital wallet program Phase 1 (cash transfers to vulnerable groups) by end-September would boost the economy in Q4

Public spending should normalize after the FY2025 budget bill proceeds as scheduled

According to preliminary data from the Ministry of Finance, budget disbursement had dropped -0.8% YoY in August while capital budget disbursement had surged 39.4%. In the first 11 months of FY2024 (October 2023 to August 2024), disbursements of the current budget reached THB 2.48 trn or 90% of the annual budget, rising 2.0% YoY. For the capital budget, the government has disbursed THB 0.36 trn or only 50% of the annual budget, falling -15.6% YoY. However, the timely enactment of the FY2025 Budget Act, with an allocation of THB 3.75 trn (+4.2% YoY), is expected to support public expenditure. Notably, the THB 0.91 trn capital budget (+26.5%) is expected to help public investment recover following slow spending in 2024 and stimulate related private sector investments.

Private consumption stagnated in Q3 but could improve in Q4 following cash disbursement under cash transfer program to 14.5 mn vulnerable individuals

The Consumer Confidence Index fell for the sixth consecutive month in August, to a 13-month low. That suggests private consumption would slow down in Q3. This is consistent with Private Consumption Index which remained flat in July (+0.2% YoY and +0.3% MoM sa), as stronger spending on services and non-durable goods was offset by weaker spending on durable goods, particularly vehicle sales. In Q4, private consumption is expected to receive a boost from the digital wallet program; the government would disburse the FY2024 budget to 14.5 mn vulnerable individuals starting late September under the digital wallet Phase 1. Phase 2 details are pending. However, consumption growth would continue to be capped by high household debt and flood impact on farm incomes.

Flood impact: Expect to be less severe than 2011 Great Flood, with losses estimated at 0.2-0.3% of GDP

In 2H24, which is the rainy season in Thailand, there is a risk of severe flooding in some parts of the country. Key indicators, such as the ONI index dropping to neutral and trending towards La Niña conditions, suggest above-average rainfall. However, damages from the flood this year would be less severe than that caused by the 2011 Great Flood, for which the World Bank estimated total damage at THB 1.44 trn. This is attributed to projected relatively less rainfall and increased water retention capacity in large and medium-sized dams, compared to 2011. Additionally, improving water management (e.g., early warning system, maintenance, and funding) and better private-sector flood defenses, particularly in industrial estates, will mitigate the flood impact. In the baseline case, we expect 8.6 mn rai of farming land to be affected by floods in 2024 with asset losses at THB 3.1 bn and agricultural losses of THB 43.4 bn. That would be THB46.5 bn in total losses, which account for 0.27% of GDP. In the worst case, the losses are estimated at 0.34% of GDP.

Private investment has improved but sentiment remained weak in August pending clarity on the new government's policies

The Private Investment Index rebounded in July (+3.4% YoY and +6.0% MoM sa) driven by stronger capital goods imports and machinery sales. However, we remain cautious about whether the recovery is sustainable because other investment indicators remain weak, including (i) the Business Sentiment Index (BSI) improved slightly in August but has been below 50 for 11 consecutive months, and (ii) Production indicators remain weak, including the Manufacturing Production Index (+1.8% YoY) and Capacity Utilization (60.3% vs 66.6% pre-Covid). Krungsri Research recently revised projected private investment growth for this year from 3.0% to only 0.2%, owing to a significant contraction in investment in the second quarter. Domestic politics might also have a strong influence and encourage investors to delay investment decisions pending greater clarity on the economic policies of the new government.

Despite strong exports in July, there are headwinds from slowing major economies and domestic structural problems; expect full-year export growth to remain weak

Recovering electronics sector and agricultural exports to drive overall export growth, but exports of key industrial products continue to drop

In the first 7 months of this year, Thai exports grew 3.8% YoY led by agricultural products which expanded by 7.1% (including rice and rubber), agricultural industrial products (rubber products, cassava products, and sugar) which expanded slightly by 0.4%, and industrial products (computers and components, plastic products) which expanded by 3.8%. However, exports of some important industrial goods continued to contract, including cars & parts, electrical appliances, and integrated circuit boards. In addition, slower imports by China might hurt Thai exports because there is a strong positive correlation (+0.7) between the two.

Tourism sector remains strong with more Chinese tourists ahead of the high season; total foreign tourist arrivals is projected to reach 35.6 mn this year

Thailand welcomed 2.96  mn foreign tourists in August, slightly down from 3.1mn in July due to the end of the peak travel season for long-haul markets and the conclusion of holiday travel in India. However, tourism continued to be supported by the visa-free program and Chinese tourists. In the first 8 months of this year, tourist arrivals reached 23.6 mn (89% of pre-Covid level vs 71% in 2023) and generated THB 1,111bn receipts (89% of pre-Covid level vs 63% in 2023) led by Chinese tourists that made up the largest group; however, they are only 63% of the pre-Covid level. Arrivals from Malaysia, India, South Korea, and Russia have recovered to 100-125% of pre-Covid levels. In the last 4 months of the year, arrivals are projected to average 3 mn per month, driven by the visa-free program for 93 countries, the Golden Week holidays in China in early October, and peak tourist season in Thailand in Q4.

Headline inflation eased to a 4-month low in August, but should return to target range in Q4; MPC might keep policy rate unchanged this year but cut rates in 2025