Thailand’s economy grew 3% in the third quarter, exceeding market expectations, but the underlying details do not paint as encouraging a picture.
The expansion of gross domestic product (GDP), a broad measure of economic activities, has accelerated gradually from 1.6 per cent in the first quarter and 2.2 per cent in Q2.
Seasonally adjusted, the economy expanded by 1.2 per cent quarter on quarter, while growth in the first nine months of 2024 was reported at 2.3 per cent, according to the National Economic and Social Development Council (NESDC), the state planning agency.
The growth was largely driven by a sharp increase in public investment, up 25.9 per cent year on year, while exports in US dollar terms also performed better than expected, growing at 8.9 per cent, nearly double the 4.5 per cent in the previous quarter.
“The top-line was good but details reveal the weaknesses of the economy,” said Supavud Saicheua, chairman of the NESDC. He pointed out that private consumption had decelerated in the July-September quarter.
Private consumption weakening
“Private consumption in the third quarter rose just 3.4 per cent, slowing down from 6.9 per cent in the first quarter and 4.9 per cent in the second quarter,” he said.
Private investment also remained weak, contracting by 2.5 per cent in Q3, after plunging 6.8 per cent in Q2, he pointed out.
He did not think that government consumption, which accelerated at 6.3 per cent in Q3 from 0.3 per cent in Q2 and a contraction of 2.1 per cent in Q1, would be sustained, including public investment.
Private consumption has been constrained as household debt remains high at 89.6 per cent of GDP in Q2.
The slower private consumption did not come as a surprise due to the high household debt, said Kirida Bhaopichitr, director of Economic Intelligence Service at the Thailand Development Research Institute, a leading independent think tank in Thailand.
Households still have limited capacity to repay their debt, despite the central bank recently cutting its policy rate by 25 basis points. “Commercial banks cut their rate by just 12.5 basis points on average, half of the central bank's rate cut,” Kirida said, referring to a survey conducted by UBS bank.
The government has implemented a one-time cash transfer to 14.5 million poor and disabled people as a stimulus measure. Each of them got 10,000 baht in late September.
The NESDC expects the impact of the stimulus measure to be reflected in the economic figures of Q4. In the next round of cash transfer, the government plans to give the handout to 4 million elderly people with a total budget of 40 billion baht in February next year.
The Thai economy has seen a K-shape recovery, but performance among economic sectors is uneven. Manufacturing expanded only 0.1 per cent in the third quarter while the farm sector contracted 0.5 per cent.
“The country depended largely on a few service businesses such as tourism-related services,” said Supavud. The service sector expanded 4.1 per cent — transport grew 9 per cent and accommodation and food service activities by 8.4 per cent.
Of this, the number of international tourist arrivals stood at 8.58 million people, accounting for 93.22 per cent of the pre-pandemic figure.
This led to international tourism receipts of 357 billion baht, increasing by 45.6 per cent from the previous year, according to the NESDC.
Kirida shares Supavud’s view, warning that property and car manufacturing industries are still struggling.
Will the upward FDI trend continue?
Foreign direct investments (FDI) are on an upward trajectory this year. The Board of Investment (BOI) last month announced that applications for investment promotion in the first nine months of 2024 increased 42 per cent year on year in value to a combined 722.5 billion baht, or about US$21.7 billion, the highest since 2015.
Large projects in target sectors such as electrical appliances and electronics, and digital — mostly data centers — led rankings due to a significant influx of FDI.
The number of applications for investment promotion during January to September increased 46 per cent to 2,195 projects, from 1,501 in the same period of 2023.
The adjusted investment value of the project applications in the first nine months of 2023 was 509.4 billion baht, according to the BOI website.
“While the BOI claimed that applications for investment promotion were the highest in 10 years, the challenge is how foreign investors are going to find enough skilled workers,” said Kirida.
“For example, Chinese electric-car manufacturer BYD Auto (Thailand) said that it needed 3,000 skilled workers this year. Many other firms have made similar requests. Therefore, manpower is the biggest challenge if we want to take advantage of foreign direct investment,” said Kirida.
Supavud is, however, pessimistic about the potential for more FDI due to Donald Trump’s policy of imposing punitive tariffs on Chinese export products.
“If Trump’s policies bring products made by Chinese firms in other countries within the ambit of high tariffs, then hopes of getting FDI would evaporate,” said Supavud.
He suggested that Thailand find new ways of earning hard foreign currency, in service industries that are not subject to tariffs. The country may need to upgrade its hospitality and medical services, in which Thailand is good, to the next level, he said.
Risks are high next year
The NESDC has forecast that the economy would grow 2.6 per cent this year and 2.8 per cent next year. Household debt would continue to constrain private consumption.
The chances of resolving the household debt crisis appear bleak. The National Credit Bureau revealed recently that a large number of families are still struggling to pay their debts.
Non-performing loans among mortgages and car-hire purchases remain high. And special mention loans — those on the brink of falling into the bad debts category — were also large, so they could potentially become non-performing loans in the future.
Exports may not perform well next year should the United States under the leadership of new President Trump start a new round of trade war by implementing high tariff rates against imported products from every country.
Geopolitics remains a threat to the global economy, as the war between Ukraine and Russia has intensified and the war in the Middle East shows no signs of ending.
Escalation of conflicts could push energy prices up that would lead to higher inflation.
“Unpredictable consequences of climate change are also a risk factor as extreme weather conditions could pose risks to the agricultural sector as well as tourism,” added Kirida.
