Monthly Economic Bulletin (February 2023)

Global: Less gloomy outlook, but still see signs of a slowdown

 

“Global economy to slow further amid signs of resilience and China re-opening; the fight against inflation is starting to pay off,” the IMF said

 

China reopening would support demand for services rather than goods; easing global supply disruptions could give a temporary boost to manufacturing production

 

US: Expect more rate hikes given lower risk of recession but the rate hike cycle might end by the middle of the year amid signs of landing

 

Europe: Even if recession risks ease, we expect 2023 growth to be much weaker than last year

 

China: Revenge spending would be limited by wealth effect; production is resuming and will continue to ease global supply chain disruptions

 

China reopening is unlikely to cause a surge in domestic inflation; impact on global inflation is more complicated depending on how demand regains ground

 

Japan: Faster drop in savings and real income raise concerns about consumption

 

Key external factors that could influence economic direction this year

 

Thailand: Cautiously optimistic about economic growth this year

 

Krungsri Research Forecasts for 2023

 

4Q22 GDP came out much weaker-than-expected at -1.5% QoQ sa, +1.4% YoY as a rebound in tourism failed to compensate a deep contraction in exports 

Weaker external demand and unwinding stimulus dragged 4Q growth; manufacturing contraction hit supply-side growth despite an expansion in agriculture and services

Export growth would remain weak due to the general slowdown in global demand, although China reopening would benefit some goods

Export of key products to China will rise, especially those with relatively-high elasticity of demand there, but gains would be limited for some items

Only four of Thailand’s top 10 Thai exports to China - Fresh, frozen and dried fruit, Rubber products, Cars & parts and Computers & parts – registered strong elasticity (>1) to China’s GDP growth. That means if pent-up demand in China returns to normal, exports of these products would gain traction. However, the projected gains in Thai exports will be limited to some sectors only.

Manufacturing production remained weak due to falling exports but recovering domestic activity and easing global supply disruption would mitigate the negative impact

Manufacturing production index contracted for the third month in a row, by 8.2% YoY, in line with the slowdown in external demand. Overall capacity utilization rate remained below pre-COVID level though the rate had exceeded pre-COVID level for some industries, including food & beverages and petroleum. In 2023, manufacturing production could face headwinds from a subdued export sector, dragged by slower global trade. However, there are some positives arising from recovering domestic & tourism activity and improvements in global supply chains since China’s reopening.

 

Private investment shrank in December but there are encouraging signs amid improving business sentiment

Recently, private investment remained weak in line with the slowing global economy and trade, but there is improving business sentiment in the manufacturing sector. The improving Manufacturing PMI in January and stronger volume of FDI applications for BOI privileges in 2022, especially from Chinese investors, are expected to bolster private investment in the medium-term.

Chinese direct investment in Thailand is encouraging; they accounted for the largest share of applications for investment incentives in 2022

In 2022, Thailand’s Board of Investment (BOI) reported foreign companies applied for BOI privileges valued at THB434 bn, rising 36% from a year earlier. China was the top investor in terms of investment value. The industries targeted by Chinese investors were electric vehicles (EVs), clean energy, data centers, and electronics.

FDI from China has surged despite the pandemic; this would promote the growth of key industries in Thailand in the medium-to-long term

Foreign Direct Investment (FDI) from China to Thailand will improve, especially in sectors which have been a consistent recipient of Chinese investment, such as Rubber & plastics products, Motor vehicles, trailers & semi-trailers, Financial & insurance, and Wholesale & retail trade.

Tourism sector: Chinese tourists to Thailand has risen to the Top 5 since China reopening in early January

Since the reopening on January 8, about 110,000 Chinese tourists have traveled to Thailand (from 1 January to 4 February), compared to only 54,146 persons in December. Recently, Tourism Authority of Thailand (TAT) had revised its target for inbound Chinese tourists to 7-8 mn (from 5 mn the month before) or around 80% of pre-COVID level. In 1Q23, TAT expects about 300,000 Chinese tourists to Thailand.
 

In Thailand, tourism sector is dependent on Chinese tourists; they accounted for largest share of tourist arrivals and tourism receipts in 2019 (pre-pandemic)

Excluding Hong Kong and Macao, about 11 mn Chinese tourists visited Thailand in 2019 (27% of total tourist arrivals), before the Covid-19 pandemic hit. They generated THB543 bn worth of tourism receipts or 28.1% of total tourism receipts.

Higher spending by Chinese tourists will provide opportunities in related industries such as  Shopping & Souvenirs, Accommodation, and Food & Beverage 

In 2019, foreign tourists in Thailand spent an average of 5,712 baht per person per day, led by spending on Accommodation (28.5%). Spending by Chinese tourists averaged 6,118 baht per person per day in Thailand, with the largest share spent on Shopping & Souvenirs (31%), Accommodation (25%), and Food & Beverage (19%).

Private consumption would be supported by the recovering tourism sector, rising employment, and stimulus measures 

The positive effects of steadily rising consumer confidence are reflected in stronger domestic spending, which has helped to drive economic growth so far this year. Likewise, the improving outlook for the tourism industry is also supporting stronger employment in tourism and related services sectors, while the looming election will also push more funds into the economy.

Several tailwinds to support consumption growth in 1H23 but recovery will remain uneven

Krungsri Research expects private consumption in 1H23 to be driven by (i) recovering economic activity, reflected by the Traffic Congestion Index in Bangkok from early 2023 to 13 February. That is now close to 2019 (pre-pandemic) level; (ii) rising farm income; (iii) government's stimulus measures; and (iv) more spending ahead of the upcoming general election. However, still-high household debt, higher lending rates and high cost of living are all dragging spending by the low-income group, so the recovery in consumption will remain unevenly distributed across the economy.

Both headline and core inflation were below market expectations in January; we expect the MPC to raise policy rate by another 25bps at the next meeting in March