Update 1 – Thailand’s Q2 GDP comes in at 2.5% well below market expectations but H2 likely to see ‘supercharged’ growth

Thailand, Southeast Asia’s 2^nd largest economy, reported the worst Q2 2022 economic growth numbers today coming in at a mere 2.5% year-on-year growth, and well below the market’s expectations of 3.1%.

The worse than expected gross domestic product (GDP) data prompted a slight dip in the Stock Exchange of Thailand (SET) which opened for trading down 5.26 points although the market shrugged off the data and gradually rebounded.

The National Economic & Social Development Council (NESDC) this morning announced that the country’s GDP grew by a mere 2.5% against most expectations of at least a 3.1% growth year-on-year.

The NESDC came out to also lower the 2022 GDP growth forecast to 2.7% to 3.2% from the earlier projections of 2.5% to 3.5% citing the impact of ongoing conflicts around the world and also the impact of the rising interest rates on the domestic consumption along with the impact on the small & medium sized enterprises (SME).

“The vulnerable should be taken care and measures to help them need to be implemented, things such as helping them with electricity bills etc,” Danucha Pichayana, the Secretary General of NESDC said during the announcement today.

H2 to Pick Up

Danucha came out to say that things are likely to pick up during the 2^nd half of the year as tourism is likely to see a sharp increase as Q4 (October to December) are usually the high season. A

“We, in a nutshell, are less sanguine for Q2 figures than the consensus, but much more sanguine for growth momentum in the second half of the year. High frequency data suggests a more significant pick-up in domestic economy and inbound tourists from July to date, in fact we carry the view that output levels will be back to the pre-crisis level only in Q3,” Enrico Tanuwidjaja, economist at UOB said.

Enrico says that his expectations were that the Q2 GDP would not be as strong because the tourism started to pick up only in July and over the next couple of months this is going to be the driving force.

“Our baseline is that Thailand will see a very accelerated growth in Q3 and Q4 and return to pre-pandemic levels by the end of the year,” Enrico told Thai Enquirer from Singapore.

His assumption is that tourism, a key driver of economic growth for Thailand would the main factor driving the economy and ‘is going to supercharge’ from Q3 onwards.

Thailand, which got rid of all the travel restrictions on July 1^st has seen tourist arrivals surge to more than a million in the month of July and up until August 6^th a total of 3.3 million.

Thailand received 1.07 million foreign tourists in July, up from 767,497 the previous month and a mere 468,000 in entire 2021 while in 2019 the tourist number was just shy of 40 million people.

Danucha of NESDC said that their expectation is that the country would see as many as 9.5 million tourists arriving in Thailand by the end of this year, and would be spending close to 660 billion Baht, thus helping boost the domestic consumption and the overall economy.

This will help push the GDP for 2022 to rise by as much as 3.2% and by 3.7% in 2023, according to UOB’s Enrico.

Interest Rate Hikes

Thailand’s economy has been reeling from the impact of the Covid-19 outbreak which has so far killed nearly 32,000 people since the 1^st outbreak on January 7, 2020, is starting to see the interest rates rising and this could have a major impact on the consumption and also on the SME sector.

“There needs to be some measures to help the SME as they will be impacted by the rise in interest rates,” NESDC’s Danucha said.

The SME accounts for nearly 70% of the employment in Thailand and has been one of the worst impacted sectors from the outbreak of the Covid-19 virus.

Thailand, on August 10^th raised the benchmark rates by 25 basis points to 0.75% in a move to stem the runaway inflation which is well above 7.5% for 2 consecutive months.

The rising fuel cost coupled with global supply chain disruption has all had a negative impact on the prices of basic goods and services and thus a rate hike is needed to stem the inflationary pressure.

But a rate hike also means that the vulnerable sector (less fortunate and the SME) is likely to bear the brunt of the impact from rate hikes as their borrowing cost is likely to rise while affordability of the less fortunate could decline.

Thailand also is the 11^th highest in the world for household debt, which is running close to 90% of GDP, and any increase in interest rates would further erode the domestic consumption, another component of the GDP.

The NESDC said that it expects inflation to be around 6.3% to 6.8% from the previous projection of 4.2% to 5.2%.

Meanwhile it projects exports to rise by 4-5% from 3.3-4.3% earlier, and Thai Baht to be traiding at 34.50 to 35.50 Baht to the US Dollar from 33.30 – 34.30 Baht against the greenback it had projected earlier.