Thailand’s economic growth in the fourth quarter of last year has disappointed many people. Real gross domestic product (GDP), a broader measure of economic output, grew just 1.4 percent year on year, decelerating sharply from 4.6 percent growth in the third quarter.  

The 1.5 percent negative contraction quarter on quarter has raised questions whether the economy might enter a technical recession if it contracts again in the first quarter of this year.

Global hiccups 

Thailand’s exports had seen a steep drop by 10.5 percent year on year in the fourth quarter.

“The global economy has decelerated faster than we expected,” said Danucha Pichayanan, secretary-general at the National Economic and Social Development Council (NESDC), a state-owned think-tank.

“However, there is only a slim chance the economy would contract in the first quarter of this year as economic indicators suggest continued expansion,” he assured. An economy is considered to be in recession if it contracts two quarters in a row.

Disappointing data

The deceleration in the fourth quarter of last year led to the Thai economy growing by only 2.6 percent in 2022, short of the 3.2 percent forecast. The Thai economy had grown 1.5 percent in 2021, as it slowly recovered from the COVID-19 fallout. However, the export of goods during 2022 grew 5.5 percent, valued at $287.1 billion.

The NESDC has revised downward its GDP growth forecast for 2023 to 3.2 percent (a range estimated at 2.7 to 3.7 percent) from the previous forecast of 3.5 percent, or a range of 3 to 4 percent.

The NESDC has forecast a 1.6 percent contraction in exports this year due to the global slowdown but upgraded its projection of tourist arrivals to 28 million from 23 million predicted earlier.

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Tourism a ray of hope

Actually, the service sector, including tourism, shored up the economy in the fourth quarter of last year. Export of services skyrocketed 94.6 percent in the fourth quarter of 2022, due largely to a jump in tourist arrivals.

Private consumption continues to play a key role in contributing to growth in the final quarter last year, as it grew 5.7 percent, decelerating from 9.1 percent in the third quarter.

Private investment expanded by 4.5 percent from an 11.2 percent increase in the third quarter of 2022, due to a slowdown in construction and machinery investment.

Public investment rose by 1.5 percent, improving from a 6.8 percent drop in the third quarter of 2022, owing to an expansion of construction and a recovery in machinery investment. However, public investment remains weak and would be constrained by high public debt in the future.

Better tidings? 

Some economists, however, believe the economy may fare better than in the last quarter of last year.

Acknowledging that the slower growth had come as a surprise, Somprawin Manprasert, chief economist at Siam Commercial Bank’s Economic Intelligence Center (EIC), said he was more optimistic.

He believes that the reopening of China and the recovery of the European economies will support growth in Thailand this year.

European economies have managed to avoid recession, despite worries on how they would cope with high energy prices. China ended its zero-COVID policy in December and reopened its borders, allowing Chinese people to travel abroad from January.

The EIC predicted that the number of foreign tourists would rise to 30 million this year, up from 11.2 million last year, of which Chinese visitors are estimated to be at least 4.8 million.

If China’s economic recovery gains momentum, it would support Thailand’s exports. China is one of Thailand’s largest export markets. Thai exports to mainland China and Hong Kong had dropped 8.97 percent last year in dollar terms, according to the Commerce Ministry.

The EIC predicted that Thailand’s GDP would expand 3.4 percent this year and exports would grow 1.2 percent, a brighter scenario than the projection by the NESDC.

Geopolitical tensions

Global geopolitics or tensions between the United States and China may have adverse effects on global trade and investment, but ASEAN countries, including Thailand, stand to gain from the tensions as some investment has flown out of China to the ASEAN region.

The NESDC has forecast expansion of private investment to 2.1 percent this year, down from 5.1 percent last year, while public investment would grow 2.7 percent, up from minus 4.9 percent last year.

Another factor boosting the Thai economy is the general election tentatively scheduled for May. Many expect economic activities related to election campaigns to help the economy.

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Risk factors

The battle against inflation in the world’s major economies are likely to affect Thailand. US inflation has remained high, with January numbers showing 6.4 percent.

The US Federal Reserve has hinted at further raising the interest rate after eight hikes since March last year. The federal fund rate has already reached the target range of 4.50 percent to 4.75 percent, the highest since October 2007. It is expected to go above 5 percent later this year.

The US wants to bring inflation down to the target rate of 2 percent. Given the wide gap between the current inflation rate and the targeted rate, the market predicts the interest rate would rise to above 5 percent. A higher interest rate would have the effect of slowing US economic growth, even if it does not enter a recession.

Slower growth in the US would have repercussions for Thailand’s exports, as the US is one of Thailand’s largest export markets. Thailand’s exports to the US last year grew 13.4 percent year on year in dollar terms.

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February 24 will mark the first anniversary of Russia’s invasion of Ukraine. The war has severely affected the commodity markets, sending oil, natural gas and food prices soaring worldwide.

The impact of high energy prices has severely impacted Thailand, as the country depends heavily on energy imports. The government has subsidized diesel and cooking gas or liquefied petroleum gas, which has led to the state Oil Fuel Fund deficit bulging at 108.6 billion baht as of February 12.

Rising prices have also weighed down on consumer spending, as their incomes are not keeping pace with inflation. The NESDC predicted that private consumption would expand only 3.2 percent this year, almost half of last year’s 6.3 percent.

Impact on consumers, SMEs

The state think-tank has warned about the plight of small and medium-sized enterprises (SMEs), which are still struggling to survive after already being hit hard from the pandemic fallout and slower economic growth.

The Bank of Thailand is expected to further increase its policy rate, following up on the rate hike to 1.5 percent in January, the fourth consecutive rate hike since August last year.

A high rate will make life difficult for lower-income groups, as they are already saddled with high debt. Thailand’s household debt remains high at 14.9 trillion as of Q3/2022, accounting for 87 percent of GDP.

By Thai PBS World’s Business Desk