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Economists have come out to say that Thailand’s economy may have bottomed out and the outlooks is a little more optimistic for the year ahead after the country’s economic growth was slightly better than expected as announced by the National Economic & Social Development Council (NESDC).
The NESDC announced the Q2 2024 gross domestic product (GDP) for 2024 at 2.3% bringing the 6-months to June 2024 GDP growth to 1.9% and expectation that for 2024 the GDP growth could be around 2.5%.
Thailand’s growth could face some downside risk, economists say, due to the global slowdown in the exports and the gradual slowing down of the global economy.
“Despite early signs of recovery in both demand and supply data, we believe a substantial portion of the Thai economy faces downside risks. (1) Weak consumption of durable goods and slow loan growth are likely to continue to put pressure on construction and real estate activities. (2) A significant part of the decline in industrial production is due to structural factors, which are unlikely to improve in the near term. (3) Regional exports have begun to show signs of a slowdown. While we expect YoY GDP growth in H2 2024 to be stronger than in H1 2024 from a low base, the risk may be tilted to the downside,” Pipat Luengnaruemitchai, economist at Phatra Securities said.
Enrico Tanuwidjaja, economist for UOB based out of Singapore, said that based on recent data and a slower momentum, the bank has slightly revised its growth forecast for 2024 to 2.7%, down from 2.8%, and for 2025 to 2.9%, down from 3.1%.
“However, risks to the near-term outlook remain skewed to the downside, with structural challenges continuing to hinder the cyclical recovery in an increasingly uncertain domestic and global environment,” he said in a note to clients.
Enrico added that despite the stronger-than-expected performance, he has revised his growth forecasts slightly lower for 2024 to 2.7% from 2.8% and for 2025 to 2.9% from 3.1%. This adjustment reflects the impact of a slower momentum, current headwinds, structural challenges, and the downside risks posed by a highly uncertain domestic and global environment.
Headwinds Ahead
The outlook for the 2nd half of the year continues to remain cautious as economists say that there are many headwinds ahead.
Watcharaporn Kantaphayao, economist at Bualuang Securities says that the Thai economic recovery remains uneven. The health of small and medium sized enterprises (SMEs) and micro enterprises remains a concern, while private investment spending is down both year-on-year (YoY) and quarter-on-quarter (QoQ). And household debt remains stubbornly high, squeezing effective consumer purchasing power. Furthermore, an influx of Chinese products has added to the challenges facing Thai manufacturers. Hence, we currently expect 2024 private investment to rise by only about 1% YoY.
Enrico of UOB goes further by saying that structurally, Thailand must urgently address its deep-rooted challenges, especially in the context of lower global growth and ongoing geoeconomic fragmentation. In the post-pandemic era, it has become increasingly clear that these structural issues—including (1) a high dependence on external demand, (2) declining competitiveness and productivity, (3) persistently low private investment leading to a reduction in potential growth, (4) a deteriorating business environment and weakening institutions, and (5) a significant household debt overhang—are not only hindering the cyclical recovery but also eroding the long-term growth potential of the Thai economy.
Despite all the call for cautions ahead, Pipat of Phatra says, that industrial production in the second quarter turned positive for the first time since Q3 2022, growing +0.2% YoY, driven by inventory cycles in certain products. Production of palm oil, food, and machinery expanded during this period, while automobile, electronics, and cement production were a drag.
He said that tourism-related services continued to expand this quarter. The accommodation and food services (+7.8%), wholesale and retail trade (+3.0%), and transportation (+8.1%) sectors showed strong growth. However, construction services contracted -5.5%, reflecting weak demand for real estate, slowing loan growth and negative investment.
Watcharaporn of Bualaung said that he forecasts 2024 GDP growth of 2.6% YoY. The drivers are private consumption and exports. Domestic consumption growth is assumed at 3.4% YoY, driven by tourism and govt stimulus aimed at boosting consumer spending.
“We now expect exports to expand 1.5% YoY in 2024, a slower growth rate than our earlier assumption, due to a softening global economy and because of geopolitical issues that made shipping considerably more expensive (shipping to and from Europe is mostly sailing around Africa, rather than through the Suez Canal, due to Houthi attacks on vessels in the Red Sea),” he said.
Methas Rattanasorn, economist at TISCO Securities, said that all considered, he reiterates his call for 2.8% GDP growth in 2024 as he believes Thailand’s economy has already bottomed out and that growth should be awakened as negative cyclical factors wane and political uncertainty fades, triggering a ramp-up of public and private investment as well as government consumption.
Methas adds that recovery in tourism sectors and exports of goods should still contribute positively. As the recovery rate of the economy picks up and inflationary pressure hold steady in the final quarter of 2024F, we expect that the Bank of Thailand’s (BoT) benchmark rate will be held at 2.50% for the rest of the year, even though the Fed is signaling that it is close to starting an easing cycle.
