Thai economy set to face headwind in 2nd half despite revival of tourism industry, says World Bank

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Thailand’s economy could face some headwinds from the volatile global economy and the lower purchasing power of Thai households despite the Thai economy starting to witness benefits from the higher number of tourists as the country opens to tourism, World Bank’s new country manager told Thai Enquirer.

“Despite the negative impacts of higher energy prices and rising inflation, consumption will be supported by increased mobility and demand for consumer goods,” said Fabrizio Zarcone the incumbent country head of World Bank said.

“However, rising food and fuel prices will erode household purchasing power and threaten food security, especially among low-income households given the large share of food spending in their household budgets,” he said.

He said that although the main drivers for Thailand’s economic growth in the second half of 2022 will be private consumption and tourism recovery, the main challenge is likely to be low household purchasing power and global economic slowdown.

Thailand’s household debt to gross domestic product (GDP) is the world’s 11th highest and is an issue that is likely to prevent the consumption-led economic recovery that many anticipate.

Zarcone, who has in the past served as the World Bank’s Country Manager for Bulgaria, Czech Republic and Slovak Republic before moving to Thailand in July, said the World Bank has estimated that a 10% increase in the global prices of food would raise the poverty rate by 1.4 percentage points and an increase of 10% in energy prices would raise the poverty rate by 0.2 percentage points.

The bank said last year that the number of poor people in Thailand increased from 3.7 million in 2019 to 5 million in 2021 because of economic impacts from the Covid-19 pandemic. The National Economic & Social Development Council (NESDC) said on Monday that Thailand has as many as 4 million people who are making just 3,000 Baht per month.

However, the Thai economic situation is improving because Covid restrictions were either eased or lifted but the recovery is expected to be gradual.

“With restrictions being eased in Thailand and internationally, the number of arrivals in the second half of 2022 is expected to be more than double the number of first half arrivals, with arrivals reaching 6 million in 2022 and rising further to 24 million, or around 60% of pre-pandemic levels, by 2024,” Zarcone said.

“This expected gradual path of recovery reflects the remaining Covid concerns, weak economy and continued travel restrictions in China, the slowing global economy, and the impact of the war in Ukraine on the cost to travel,” he said.

The bank said in its Economic Monitor report for Thailand that was released around the end of June that they expect the Thai economy to expand by 2.9% in 2022, a projection that was downgraded by 1% from its projection in December.

The World Bank’s new outlook is in line with the NESDC’s latest estimate on Monday that the economy will expand within the range of 2.7-3.2% this year.


In terms of economic challenges in the second half of 2022, Zarcone pointed out to the expected global economic slowdown.

“After more than two years of the pandemic, the war in Ukraine and its global effects on commodity markets, supply chains, inflation, and financial conditions have steepened the slowdown in global growth,” he said.

“Global growth is projected to slow from 5.7% in 2021 to 2.9% in 2022, and 3% in 2023, as the war significantly disrupts activity and trade in the near term, pent-up demand fades, policy support is withdrawn amid high inflation and the slowdown in China,” he said.

As a result, Thailand’s exports of goods are expected to grow at 4.1% in 2022, slowing down after a strong showing in 2021 when exports saw an 18.8% growth from the previous year.

The World Banks’s 4.1% estimate of export growth is much lower than that of the NESDC’s and the Bank of Thailand (BoT)’s which expect the exports to see an estimated growth of 7.9% for 2022.

“We find that risks to the outlook continue to skew to the downside. The trajectory of the pandemic remains unpredictable,” Zarcone said.

“The economic fallout from the war in Ukraine could last for longer than expected, with a more prolonged impact on inflation likely to put further downward pressure on consumer demand.”

Fabrizio Zarcone – World Bank’s Country Head for Thailand

He also said the gradual tightening of the monetary policies in the Untied States and other advanced economies, along with the ensuing increase in global borrowing costs, represents another significant headwind for the developing world.

However, Thailand is expected to continue to maintain strong buffers against external shocks, with consistently high international reserves and relatively low foreign holdings in the sovereign bond market, he added.

The US Federal Reserve (Fed) hiked their interest rates by 0.75% to a range of 2.25% and 2.5% on July 28. According to the minutes of their July 26-27 policy meeting that was released on Tuesday, the US Fed is expected to continue to raise its rates this year to control an ongoing surge in prices as well.

In Thailand as well the Bank of Thailand then hikes its policy interest rate from 0.5% to 0.75% on August 10, and more tightening is expected as inflation continues to remain a major concern.

Thailand has also been undertaking a gradual tightening and on August 10th the BoT hiked the rates for the 1st time since 2018 by raising as much as 0.25% to tackle inflation which currently hovers near 14-year highs at 7.61% in July. The central bank is expected to raise rates by 0.25% each time that it meets during the next 3 meetings slated for 2022.

Fiscal Stimulus & Circular Economy

Zarcone came out to say that he recommends rebuilding of fiscal buffers and exploring more environmentally sustainable and efficient approaches to economic production

The World Bank also recommended more targeted fiscal support to limit pain from cumulative shocks and create space for investment.

In short term, cash transfers targeted at low-income households can be used to mitigate the welfare impact of rising prices and ensure food security among vulnerable groups, while allowing prices to gradually adjust.

For the mid-term, the Thai government should make progress on fiscal consolidation while rebalancing public spending towards public investment and further effort on revenue mobilization, such as carbon tax.

In the long run, Thailand will need structural reforms to significantly increase investment and productivity growth to achieve the growth needed to reach high-income status.

“More environmentally sustainable approaches to economic production, such as the circular economy, can help promote resilient, more sustainable, and greener growth,” Zarcone said.

He said recent developments have highlighted Thailand’s oil dependence and vulnerability to global supply chain disruptions.

“The circular economy aims to replace the traditional take-make-waste economy with one based on reusing renewable natural capital and keeping materials and products in use for as long as possible,” he added.

Zarcone said the circular economy could reduce Thailand’s greenhouse gas emissions by 5% by 2030. At the same time, the country’s dependence on imported energy would decline, helping to insulate Thailand from high and volatile commodity prices, he added.


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