The Ministry of Finance has indicated that the Thai economy may not meet the predicted economic growth of 3.8% next year as a result of deteriorated global economic conditions.

The Economic Intelligence Center (EIC) revised the Thai economic growth forecast to 3.2% (from the previous 3.0%) for 2022. A rebound in tourism and private consumption, improvements in the tourism and related service sectors, as well as labor income, has accounted for much of this. 

However, the 2023 growth forecast is revised down to 3.4% (from 3.7%) since the signs of a global economic slowdown have become more apparent amid rising uncertainties.

It also appears that some nations which are particularly influential due to their economic position—particularly the US and some European countries—will plunge towards a recession by the end of 2022. Pairing this with worsening political division both domestic and outward within the Western bloc, it could potentially be a year in which many households and firms have to brace for difficulties. 

Global economic slowdown

Though the global economy has yet to enter a recession with some countries still recording growth. For instance, China seeks to have its economy rebound while also maintaining a standard of public safety and peaceful development.

The implementation of Covid and economic policy will be of great importance for both China and Thailand. The escalation of international conflicts, paired with growing economic woes may create the conditions for a rather harmful period of global recession. This could quite adversely affect those already in precarious economic positions, households, and small businesses in Thailand for example. 

Some major economies will soon enter a recession, and this would weigh down on Thai exports and investment ahead. Nonetheless, a solid rebound in tourism—thanks to the return of foreign arrivals—would provide significant support to Thailand’s economy in 2023.

 Economic Intelligence Center (EIC)

Decelerating export growth

Exports, a key driver of growth, dropped 4.4% in October for the first time in 20 months and the Ministry of Commerce predicted this will continue along with the difficult global economic situation. Finance Minister Arkhom Termpittayapaisith, claims slowing exports will not affect the predicted growth outlook for 2022, with the tourism sector regaining momentum in this final portion of the year. 

However, the finance ministry still expects exports to increase 2.5% next year. It also expects 21.5 million tourists in 2023. Arkhom noted that Thailand’s fiscal position remains strong enough to withstand future risks.

Tourism support

The EIC anticipated the return of 28.3 million tourist arrivals in 2023 due to high travel demand and the People’s Republic of China currently testing the loosening of some Covid regulations. 

On the 29th of November the Cabinet approved a 37 billion baht (US$1.04 billion) expansion of the Don Mueang International Airport (DMK) to accommodate 10 million additional yearly passengers, from 30 to 40 million.

Domestic tourism has achieved its pre-pandemic clip, giving a boost to domestic consumption. 

A continued reliance on tourism would provide some of the most notable support to Thailand’s economy in 2023, though that comes with much uncertainty, primarily for families and small businesses. 

Inflation remains a concern

According to the NESDC, full-year headline inflation is predicted to reach 6.3% in 2022. Next year, it is anticipated to decline to a range of 2.5 to 3.5 percent.

Inflationary pressures still remain high due to the ongoing energy crisis due to the conflict in Ukraine and subsequent western sanctions on Russia. It appears for the time being Russia has been able to subvert and survive the economic pressures, and therefore the energy crisis appears to be one that will draw on until something changes in the military conflict itself. 

Somprawin Manprasert, Ph.D., First Executive Vice President, Chief Economist of the Economic Intelligence Center (EIC), and Chief Strategy Officer at Siam Commercial Bank PCL also speaks about global economic slowdown this year and next, rising uncertainties from elevated inflation, prolonged energy crisis, and monetary tightening worldwide, provide potential obstacles to global economic growth. 

Interest rate trend

Also noteworthy is the relationship to the Federal Bank. A global recession could ensue if the Fed raises its policy rate to 5.75-6.00%. There is a very high chance Thailand could go into a recession in this scenario. 

Aggressive monetary tightening in advanced economies has pushed up bond yields and worsened the downturn of financial conditions in emerging East Asia, according to a report by the Asian Development Bank (ADB).

The EIC anticipates the baht to stay around at 36/37:1 ratio with the dollar around the end of 2022, and appreciating to around 34/35 by the year’s end of 2023. 

The Bank of Thailand’s policy rate will rise to 1.25 percent this year and 2 percent the next year, according to the EIC’s projections. As a result, Thitima said, vulnerable households and businesses will have to deal with high rates of debt, inflation, and interest.

Downside risks

Thitima pointed to the main downside risks being: a sharp decline in the global economy, adjustments in Covid-19 regulations, high inflation, interest rates, and debt which put many households in a worsening financial situation, and political uncertainty.

Thitima Chucherd, Ph.D., Head of Economic and Financial Market Research of the EIC, stated that “In EIC’s view, the Thai economy will witness a modest yet uneven rebound.”

The unevenness more or less means that tourism and consumption would be the healthier sectors, with exports and investments taking a significant hit. High costs of living and the Covid-19 crisis have caused significant economic hardship over the past two years. Businesses with connection to the global markets, generally the larger multinationals, rebounded with much more ease than local businesses, which always suffer in times of high inflation and recession. 

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