SCB EIC cuts the Thai 2024 GDP growth forecast to 2.7% an a anticipates the MPC to lower rates within H1 following the lower neutral rate.
SCB EIC revises down Thai economic growth forecast for 2024 to 2.7% from 3%. While the overall economy in 2024 is anticipated to continue its recovery
Thai economic growth forecast for 2024
SCB EIC revises the Thai economic growth forecast for 2024 to 2.7% due to a moderation in economic momentum and the slow recovery of the manufacturing sector, which can be attributed to structural challenges.
SCB EIC revises down the Thai economic growth forecast for 2024 to 2.7% from 3%. While the overall economy in 2024 is anticipated to continue its recovery, propelled by accelerated growth in various demand-side factors, particularly exports and private investments, there are notable challenges. The momentum from the public sector will continue to weaken , resulting from delays in the 2024 Budget Act. Additionally, the high level of accumulated inventory, which was a critical issue in 2023, is unlikely to drop in 2024, revealing structural issues within the Thai manufacturing sector. Particularly, Thai exports are facing diminished competitiveness and limited adaptability to changing global product demand patterns and long-term supply chain dynamics. Consequently, the manufacturing sector's recovery trajectory in 2024 is hindered, which does not align with the demand-side of the Thai economy, shedding light on substantial structural challenges within the manufacturing sector.
Weak manufacturing conditions challenge Thai economic growth.
Regarding the supply side of the Thai economy in 2024, SCB EIC projects that the manufacturing sector will revert to an expansion fueled by strong consumer goods recovery. However, the growth is expected to stall, as numerous industries grapple with all-rounded demand-side and supply-side pressures , including (1) Higher penetration of imported products, especially from China. (2) Slow recovery of overseas demand coupled with lower export competitiveness on a global scale, partially from a cost disadvantage. The lower competitiveness is reflected upon the tepid growth of Thai exports over the past decade and the continual decline of Thai exports share since 2020 despite the robust expansion of export volume from other countries in the region. (3) Delays in the 2024 Budget Act. (4) High accumulated inventory. (5) Geopolitical risks, particularly in the Red Sea area, which may escalate and hurt Thai exports.
Structural challenges within the manufacturing sector also lower Thailand’s potential economic growth.
Thailand’s potential economic growth continues to drop following more severe structural challenges in the manufacturing sector. SCB EIC estimates that the pre-COVID-19 potential GDP growth (2017 – 2019) for Thailand stood at 3.4%, while the long-term potential GDP growth (2024 – 2045) should drop to 2.7%, declining from the previous estimate of 3% as of December 2023. A major contributor to this decline is the greater decrease in Thailand's total factor productivity, exacerbated by the deepening structural challenges in the Thai manufacturing sector. These challenges arise from the close interdependence of the Thai economy to the Chinese economy and the Chinese supply chain amid global geopolitical conflicts, limited adaptive capacity to long-term global supply chain, and slow adjustments to changing global product demand patterns.
SCB EIC foresees 2 policy rate cuts by the MPC in April and June to 2%, aligning with the lower neutral rate.
SCB EIC evaluates that the MPC will cut the policy rate to 2% during H1/2024 to sustain a neutral monetary policy stance. This is because by considering the structural factors that determine the appropriate interest rate, Thailand's neutral rate drops to 2.1% (from 2.5%). Therefore, these policy rate cuts will not only help maintain a neutral stance while fostering long-term economic growth at a sustainably lower rate but also further alleviate the high debt burden, particularly for vulnerable businesses and households that are disproportionately impacted by elevated interest rates. Beyond that, the anticipated rate cuts should strengthen Thailand’s economic confidence, especially amid limited momentum from the public sector this year.
