11 July 2024

The government recently sent a letter to the Council of State, its legal advisor, seeking its opinion on the proposed 500-billion-baht borrowing plan to fund the digital wallet scheme.

The current economic debate boils down to one question: Is the economy facing a crisis that needs a heavy-handed intervention from the government? Current indicators point to ups and downs for the economy.

The local stock market is sluggish and at new lows, suggesting low confidence in the financial markets about the path to economic recovery. Many market participants have lost confidence in the stock market despite the Finance Ministry launching the TESG fund, which is aimed at promoting long-term investment in securities and bonds issued by listed firms rated in the sustainability index of the Stock Exchange of Thailand, aligning with environmental, social and governance criteria. The government projects that 10 billion baht will flow into the stock market due to the establishment of the TESG fund.

Good sign for exports 

Exports seem to have finally turned the corner, rising 8 per cent in October — expanding for the third month in a row — raising hopes of exports once again rekindling economic growth. The Thai National Shippers’ Council, a club of exporters, has predicted that Thailand’s exports in dollar terms would shrink by 1 to 1.5 per cent this year and grow at 1-2 per cent next year.

Tourism rebound not high enough

The number of foreigners visiting Thailand rose to 25.08 million as of December 3, generating 1.1 trillion baht in revenue for Thailand, the governor of the Tourism Authority of Thailand (TAT), Thapanee Kiatphaibool, said. Chinese tourist arrivals, however, had fallen short of the target due to the slower economic recovery in China, she said.

Thailand is expected to receive a total of 27 million tourists this year, within the TAT’s target of 25-28 million, according to Thapanee.  The country has been heavily dependent on export and tourism revenue.

Doubts over digital wallet scheme

The Bank of Thailand (BOT) has revised downward its forecast for economic growth to 2.4 per cent this year, but predicts 3.2 per cent next year. However, if the government is able to borrow 500 billion baht to finance the digital wallet scheme, the economy would grow 3.8 per cent.

The digital wallet scheme, which will distribute 10,000 baht each to 50 million citizens aged 16 years and above is tailored to boost local consumption.

Uncertainty, however, shrouds the scheme and there is even the possibility that it may fail to get approval from Parliament or be blocked by the Constitutional Court for violating the Constitution and the State Fiscal and Financial Disciplines Act.

Boost for consumption

The move to hike the daily minimum wage is pending approval from the Cabinet. All indicators are that the hike will be lower than what was promised by the Pheu Thai Party in the run-up to the May 14 general election.

Inflation is unlikely to be a problem next year, as the central bank forecasts headline inflation at between 2 to 2.2 per cent, up from the estimated 1.3 per cent this year. Core inflation (excluding energy and fresh food) is expected at between 1.2 to 1.5 per cent compared with 1.3 per cent this year.

With inflation tamed, the BOT is unlikely to increase its policy rate next year. The Monetary Policy Committee (MPC) voted unanimously on November 29 to maintain the rate at 2.5 per cent, as the economic recovery has been driven by private consumption, said Piti Disyatat, secretary of the MPC.

External and internal impacts

The Thai economy could be expected to perform better if the US Fed cut its policy rate next year, which could bring capital inflows to Thailand and boost the stock index. The easing of pressure in the financial markets next year would make it easier for companies to borrow or refinance their debts.

Another key factor is China’s economy. If it recovers faster next year, it could lead to more import of Thai goods and also encourage more Chinese tourists to visit Thailand.

Thai government spending has been adversely impacted by the delay in government formation after the May general election. The government may be able to accelerate spending next year. It has set expenditure in fiscal year 2024 at 3.48 trillion baht, a deficit of 693 billion baht, as planned expenditure exceeds revenue.

Consumer spending has played a key role in economic recovery this year, and private consumption is expected to expand 3.2 to 4.5 per cent next year, according to the central bank. However, high household debt at 90 per cent of gross domestic product may limit purchasing power.

The number of foreign visitors is expected to rise to 34.5 million next year, up from 28.3 million this year, according to the central bank’s forecast. The TAT projects total foreign tourists at 27 million this year, generating 1.2 trillion baht in revenue, falling short of its revenue target of 1.6 trillion baht. The tourism sector will continue to be a key component in boosting economic growth.

Downside risks

If the US Federal Reserve maintains its high interest rate for a longer period, the pressure on financial markets would not ease with potential repercussions for the Thai financial markets. This would make it harder for companies to borrow or service their debt.

China has far from resolved its property crisis, which would have a spill-over effect on other sectors, limiting overall recovery. This could again have a domino effect on Thailand’s economy, considering the volume of Thai exports to China and its dependence on Chinese tourists.

Meanwhile, the Organization for Economic Cooperation and Development (OECD) recently forecast slower global economic growth next year at 2.7 per cent, compared with 2.9 per cent this year. The growth is expected to see a slight improvement to 3 per cent in 2025.

GDP growth in the United States is projected at 2.4 per cent in 2023, before slowing to 1.5 per cent in 2024, and then picking up slightly to 1.7 per cent in 2025 as monetary policy is expected to ease.

In the euro area, which had been relatively hit hard by Russia’s war on Ukraine and the energy price shock, GDP growth is projected at 0.6 per cent  in 2023, before rising to 0.9 per cent  in 2024 and 1.5 per cent in 2025.

China is expected to grow at 5.2 per cent this year, drop to 4.7 per cent in 2024 and 4.2 per cent in 2025 on the back of ongoing stress in the real estate sector and continued high household saving rates, says the OECD.

Geopolitical risks

Currently there are three major wars rocking the world: Russia and Ukraine, Israel and Hamas, and trade tensions between the United States and China.

The risk of trade tensions remains, although many are optimistic about an improvement in relations between the US and China after a meeting between US President Joe Biden and his counterpart Xi Jinping in September this year.

Impact of El Niño

The crisis of climate change, especially the El Niño phenomenon, could damage both the farm and tourism sectors, according to Witsanu Attavanich, an associate professor of economics at Kasetsart University’s Faculty of Economics.

While drought could hit rice output and other crops, the high temperature in the sea could impact natural coral reefs which is a source of tourist income, he warned.

By Thai PBS World’s Business Desk