Monthly Economic Bulletin (September 2023)

Global: High uncertainty despite hopes for a soft-landing

Post-lockdown recovery is running out of steam; Eurozone’s services industry has reversed to contraction territory; China's services activity expanded at its slowest rate in 8 months

 

US: Despite lower risk of a hard landing, job market boom is over, underlying inflation is softening, credit conditions are tightening, suggesting the Fed might end rate-hike cycle

 

Eurozone: Decelerating economic growth in Eurozone adds to signs of rising recession risks in the second half of this year

 

Japan: Growth is dragged by higher cost of living and weak demand in export markets; BOJ head signals chance of ending negative interest rate policy 

 

China: Easing downward pressure on manufacturing and property sectors after latest policy supports but economic growth remains weak amid domestic and external headwinds

Thailand: Light and uncertainty at the end of the tunnel 

Krungsri Research Forecasts for 2023-2024

2Q23 GDP grew only 0.2% QoQ sa and 1.8% YoY due to weak exports, falling public spending, and slowing investment; overall growth bolstered by tourism and consumption

 

Weaker exports and public spending dragged 2Q GDP growth, manufacturing continued to contract and agriculture sector slowed; however, services sector posted strong recovery

 

Current government’s policies: Plans to stimulate the economy in the near-term; fiscal multiplier of digital wallet scheme could be less than 1

The government has tabled a policy statement for discussion at parliament. It comprises (i) Short-term framework, and (ii) Medium-term and Long-term framework. One of its top priority is the digital wallet (10,000 baht per citizen aged 16 years and over to be spent within 6 months (total budget THB560 bn). The impact on the broader economy is dependent on how much is reinvested.  A research by the Parliamentary Budget Office (PBO) in 2021 found relatively lower fiscal multiplier of 0.947 for transfer payments to the general public, compared to multipliers for other public spending activity, including direct government spending (1.947), government officers’ wages (1.871), transfers to low-income earners (1.356), and public investment (1.242).

Tourism sector: Government proposes visa-free scheme for tourists from China during peak season; slowing tourism receipts remain a concern

The Tourism Authority of Thailand’s data show the country welcomed 2.45 mn foreign tourists in August, slowing slightly from 2.49 mn in July. The average number of tourists per week in August was 0.53 mn (vs 0.56 mn in July). In the first eight months of this year, tourist arrivals reached 17.86 mn (67% of pre-Covid/2019 level) and generated THB755 bn receipts (61% of pre-Covid level). Arrivals from Malaysia, Russia, South Korea and India reached 79-111% of pre-pandemic levels. Chinese tourists are returning slowly (29% of pre-Covid level). The current government wants to stimulate more tourism activity. It has recently proposed visa-free scheme for Chinese tourists during peak season (applicable from September 25, 2023 – February 29, 2024). This would help to meet the TAT’s target of 5 million tourist arrivals for 2023 against 2.23 million in the first 8 months of this year. However, weak tourism receipts and the economic slowdown in China could limit gains in the sector. So far this year, tourism receipts averaged THB 42,000 per person compared to THB 47,000 in 2019 (pre-Covid).

Private consumption continues to be supported by accelerating services sector and improving confidence, but growth might be limited by high household debt and drought impact 

The Private Consumption Index rose 7.3% YoY in July, accelerating from +5.5% in June, driven by spending in the services category which was temporarily supported by the long holiday period. In the next period, there are positive factors including recovering consumer confidence and stimulus measures to relieve the burden of rising cost of living (such as reducing electricity cost and diesel fuel price), but private consumption would still face headwinds from high household debt, elevated borrowing costs, and the drought hurting farming income.

Household debt remained high at 90.6% of GDP in 1Q23, despite falling from a peak of 95% 

The BOT has redefined and broadened its definition of indebted households to include additional lenders1/, which pushed up total debt owed by Thai households to THB 16trn in 1Q23, or 90.6% of GDP vs 86.3% under the previous definition. However, it is below that registered in 4Q22 at 91.4% of GDP (87.0% pre-adjustment). However, the structure of household debt classified by purpose remained close to pre-adjustment level; they are mostly real estate loans (34% of total debt), followed by credit card & personal loan (27%) and own business loans (18%).

85% of indebted households and 26% of debt-free households have weak purchasing power

We measured the borrowing capacity of several household groups in Thailand by looking at income, expenses, and debt repayment. The result suggests indebted households with monthly income below THB50,000 and debt-free households with monthly income below THB10,000 have weak borrowing power as total expenses including debt repayments exceed their income. They account for 85% of indebted households and 26% of debt-free households. However, households with high monthly income (more than THB50,000 for indebted households) and debt-free households (except those with monthly income below THB10,000) have room to borrow more.

Private investment show signs of improvement as clarity in domestic politics lift investor sentiment, but upside could be curbed by weak external demand

The Private Investment Index rose 1.4% YoY in July, led by investments in the construction sector. The Business Sentiment Index (BSI) dropped to an 8-month low of 48.9 in August from 49.3 in July, but the expected BSI (next 3 months) improved to 54.1 from 53.3 in July, following the formation of the new government. Furthermore, latest data by the Commerce Ministry show the total applications for registration by foreign investors had increased to THB10.02 bn in July from THB3.54 bn in June and is higher than the average of THB8.16 bn per month in the first half of this year. In the first 7 months of 2023, the number of such applications reached 377 with a total value of THB 58.95 bn. The top 5 foreign investors were from Japan, US, Singapore, China and Germany. However, investment in export-related sectors could remain weak amid the global economic slowdown.

Exports: Contracts for 10th consecutive month in July; we trimmed full-year 2023 export growth forecast from +0.5% to -1.5%

Thailand's exports remain vulnerable amid weakness in production sectors in core countries

In the first seven months of this year, Thai exports contracted by 5.5% YoY led by a 5.0% decline in orders for industrial products such as computers & parts and plastic resin, and a 3.7% decline in agricultural & agro-industrial products such as rubber and tapioca products. For the rest of this year, exports will still face pressure from a slowdown in global demand, as reflected by slowing manufacturing activity (data suggests contraction) in major countries (except China). Exports of major exporting countries in Asia remain weak. However, some Thai exports might be supported by product-specific factors and rising concerns over food security, such as automobiles, electrical appliances, rice, and sugar.

Supply side: Services sector show stronger and broader-base recovery but manufacturing remains fragile

• In the services sector, most categories have recovered above pre-Covid levels and registered positive year-on-year growth, including Information & Communication (24% above pre-covid level, +8% YoY), Professional Scientific & Technical (37%, +9%), Financial and Insurance (12%, +9%), Wholesale & Retail Trade (10%, +6%), Public Admin & Defense (2%, +3%) and Administrative & Support Services (1%, +21%). Output of those categories accounted for a combined 37.6% of GDP. Manufacturing industry that is 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%).
• Manufacturing and services industries that remained weaker than pre-pandemic levels but registered improvements include Automotive (3.9% of GDP), Accommodation & Food Service (6.6%), Transportation & Storage (6.9%).
• Manufacturing industries that remained weaker than pre-covid levels and registered negative growth include Electrical Appliance, Food & Beverages, Cement & Construction, Rubber & Plastic, Chemicals, HDD and Textile & Apparel. Output of those industries account for a combined 15.5% of GDP.

 

Cooling core inflation may provide space for MPC to hold policy rate at 2.25% at September meeting