Outlook Quarter 4/2023

SCB EIC revised down its growth forecast for 2023 to 2.6% due to a much lower-than-expected Q3 GDP outturn, a large contraction in government spending, and lower tourist arrivals than the previous forecast partly due to a slow recovery of Chinese tourists. For 2024, the Thai economy will continue to grow at 3.0%. Exports will expand on the back of rising global trade growth. Private investment will pick up in line with exports recovery, increasing trend of investment promotion applications, as well as government policies to boost investment. However, the Thai economy in 2024 may recover slowly and grow at a lower rate than previously projected due to weaker economic momentum following a high growth of private consumption this year and a slower-than-expected recovery in household income, particularly the low-income group. Also, Chinese tourists recovered more slowly than expected. Public investment will expand at a low rate due to a delay in the FY2024 Budget Act. 

SCB EIC expects the Thai policy rate to be kept at the current level of 2.5% throughout 2024 regarding as a neutral rate, which is consistent with the Thai economy at its long-term potential and inflation remaining within the target range. Such neutral rate will also help balance Thailand’s financial system as real interest rate turns positive, reducing incentives for households to accumulate more debt and lowering underpricing of risks arising from a prolonged low rate environment. Nevertheless, inflation will accelerate somewhat next year driven by supply-side pressures which will lead to further cost passthrough of businesses. At the same time, the Digital Wallet scheme may boost economic growth beyond its potential level, creating demand-side inflationary pressures to some extent. However, the stimulus effect is expected to be temporary and the Thai economy will eventually return to its potential. Thus, this scheme is expected to have a limited impact on inflation so that it will remain within the target range of 1-3%. On the Thai baht, it is expected to stabilize within the range of 35-36 baht per USD for the remainder of this year and will continue to strengthen to the range of 32-33 baht per USD at the end of 2024 driven by fundamental factors as the Thai economy continues to recover, additional government stimulus, and the Fed’s policy easing outlook.

For the global economy in 2024, growth is expected to slow to 2.5% from 2.7% in 2023 due to the lag effects of monetary policy tightening among developed countries, as well as depleting excess savings especially in the US. Moreover, Chinese economy will likely slow down both in short term and medium term due to pressures from structural factors. In the medium term, the global economy is expected to recover despite growing at a lower rate than pre-Covid due to surrounding risk factors, especially geopolitics.  

Tightening cycle among major economies has come to an end. The Fed and the ECB will start the policy rate cut faster than expected in Q2/2024 given that inflation declines quite faster. The PBoC will likely continue easing monetary policy to stimulate the economy. Meanwhile, the BOJ is expected to scale back its monetary policy easing by lifting the yield curve control measure during the first half of next year and exiting the negative policy rate policy in the latter half of next year.

In the long term, SCB EIC is concerned about the Thai economy growing at a lower rate over a declining potential growth. This is a result of prolonged structural issues including low investment, lower total factor productivity, and scars from the Covid pandemic. Obviously, Thailand was ranked among the countries that have slowest recoveries from the Covid-19 crisis. Moreover, the Thai economy remains fragile and weak due to uneven recovery of households and businesses, especially low-income households and small businesses with high debts but slow revenue recovery. In addition, the Thai economy is facing rising uncertainties stemming from external factors, including climate change and geopolitical issues, and domestic factors such as government policies that must be monitored closely. Highly uncertain government policies could squeeze fiscal buffer for additional spending to address economic uncertainties and promote investment to enhance Thailand’s long-term potential.

SCB EIC proposes solutions to address Thailand’s structural issues following a set of “four enhancing policies”, comprising (1) enhancing immunity for households through the creation of comprehensive and adequate social assistance and social insurance mechanism; (2) enhancing competitiveness of Thai businesses through promoting trade competition, expiditing regulatory guillotine, and joining as member of the Organization for Economic Cooperation and Development (OECD) to accelerate Thailand’s access to OECD’s know-how and good practices; (3) enhancing national investment strategies to suit the changing global trends; (4) enhancing  sustainability of the Thailand’s real sector through government as a facilitator which will be the key factor enabling businesses to adapt to global trends in an efficient and sustainable manner.