Thailand Monthly Economic Monitor 21 March 2023 The economy resumed moderate expansion as private consumption and tourism improved at the beginning of 2023, after a disappointing Q4 outturn. However, lingering soft global demand continued to weigh on goods exports, manufacturing, and private investment. Inflation slowed amid easing global energy prices but remained above the Bank of Thailand’s target range of 1-3 percent. As a result, authorities extended energy-related subsidies while maintaining monetary policy normalization. The Thai baht depreciated the most among major ASEAN currencies in February as the current account turned deficit due to slowing export of goods while substantial portfolio flows exited the equity and bond markets. The economy picked up modestly in January as private Figure 1: Services and Manufacturing Growth consumption and tourism picked up, despite a contraction Continued to Diverge (Index, Q4 2019 = 100) in goods exports. In January, services increased by 14.0% 130 (year-on-year), supported by strong private consumption and improving consumer confidence as the labor market and tourism 115 continued to recover (Fig. 1). Private consumption growth 100 rebounded in January and consumer confidence rose to a three- 85 year high in February, with unemployment reaching its pre- 70 pandemic rate of 1.0 percent in December. Nevertheless, 55 elevated inflation has undermined real wage gains and poses a Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 risk to domestic consumption recovery (Fig. 2). Manufacturing Private Consumption Index Goods Exports contracted for the fourth consecutive month at 5.3% (year-on- Consumer Confidence Manufacturing Production Index Service Production Index year), remaining below its pre-pandemic level, due to the fall in Source: CEIC; World Bank staff calculations. goods exports. Figure 2: Contracting Real Wages Weighed on Labor Market Recovery The tourism recovery reversed slightly due to India’s (Left: Percent year-on-year; Right: Percent) temporary Covid testing requirement. Tourist arrivals reached Unemployment Rate, RHS 30 3.0 57 percent of the pre-pandemic numbers, down from 59 percent Average Monthly Wage: non-agricultural sector in December (Fig. 3). In January, India implemented a Covid 20 Real Monthly Wage: non-agricultural sector testing requirement for tourists returning from Thailand. The requirement was abandoned on February 13. Although 10 1.0 January’s arrivals from China remained low at just 9 percent of 0 the 2019 level, the number has surged by 70 percent (month-on- month) since the relaxation of travel restrictions and is expected -10 -1.0 2013 2022 2012 2014 2015 2016 2017 2018 2019 2020 2021 to recover strongly in 2023. Note: *Real wage is deflated by headline CPI Goods exports remained weak due to falling global demand Source: CEIC; World Bank staff calculations. for manufacturing goods, pushing the current account back into deficit. Goods exports growth contracted for the fourth Figure 3: Tourism Recovery Slowed in January (Percent of 2019’s level*) consecutive month at 4.5 percent (year-on-year) in January. Others Oceania 59 57 60 USA Russia Falling manufacturing exports, especially electronics and steel, Europe (Excl.Russia) ASEAN 47 50 50 contributed to the overall contraction, similar to other major India Japan Korea China 43 exporters in Asia (Fig. 4). However, February’s improved Global 40 Total 34 35 Manufacturing Purchasing Manager Index (PMI), on the back of 30 25 18 stronger demand from the US and China, signals a positive 20 9 outlook for the coming months. In contrast, goods imports 10 4 4 6 expanded by 9 percent (year-on-year) boosted by imports of raw 0 materials and intermediate products, especially energy-related Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22 Jan-23 imports. As a result, the current account recorded a deficit of Note: *average of 2019 considered a seasonal factor Source: Haver Analytics; World Bank staff calculations. THAILAND MONTHLY ECONOMIC MONITOR | 1 THB 2.0 billion or 4.8 percent of GDP, reflecting the goods trade Figure 4: Manufacturing Exports Contraction Dragged deficit, while the services and income balance continued to Down Goods Exports (Percent year-on-year contribution to growth) expand (Fig. 5). 20 Agricultural products Manufacturing Mineral Total 15 10 Headline and core inflation slowed due to softening energy 5 prices but remained elevated. Energy inflation declined 0 markedly from 11.1 percent to 7.8 percent, due to a cut in the -5 -10 regulated price of diesel in February from THB 35 to THB 34 per -15 liter, the first cut in 7 months as global oil prices eased. With -20 -25 easing input cost pressures, core inflation slowed to 1.9 percent Nov-22 Dec-22 Nov-22 Dec-22 Nov-22 Dec-22 Nov-22 Dec-22 Nov-22 Dec-22 Jan-23 Jan-23 Jan-23 Jan-23 Jan-23 as second-round effect started to level off (Fig 6). Headline inflation eased but remained high at 3.8 percent in February Indonesia South Malaysia Thailand Taiwan above the Bank of Thailand’s target range of 1-3 percent. Korea Consequently, the Bank of Thailand is expected to maintain Source: CEIC; World Bank staff calculations. gradual monetary policy normalization to support the recovery, Figure 5: The Current Account Balance Returned to despite the widening interest rate differential between the US Deficit in January and Thailand (Fig 7). (USD million) BOP: USD: Trade Balance 8000 BOP: USD: Services, Primary Income & Secondary Income The fiscal deficit narrowed due to lower spending, but 6000 BOP: USD: Current Account Balance revenue collection has yet to improve due to extended cost- 4000 of-living measures. The central government’s deficit narrowed 2000 to 7.4 percent of GDP in the first four months of fiscal year 2023 0 (Oct 2022 to Jan 2023) below pre-pandemic levels and down -2000 from 11.2 percent of GDP in the same period last year. This -4000 reflected a decrease in total expenditures to 24.2 percent, down -6000 from 28.7 percent of GDP last year, while revenue remained 01/2020 07/2020 01/2021 Source: Haver Analytics; World Bank staff calculations. 07/2021 01/2022 07/2022 01/2023 stable at 15.6 percent. The speed of fiscal consolidation has been constrained by extended cost-of-living support measures Figure 6: Headline Inflation Declined due to Easing (e.g. excise tax cut on diesel until July) and delayed electricity Fuel and Core Prices (Percent, year-on-year) price hikes. The suspended launch of the financial transaction 8.0 tax will also limit opportunities to raise revenue. The tax, which Energy & tranportation related (17%) Food related components (27%) was previously planned to launch in early 2023, was opposed by 4.0 Non-food, energy & transportation (56%) the Federation of Thai Capital Market Organizations (FETCO), Headline inflation citing concerns over its impact on the liquidity of the stock 0.0 market. The Finance Ministry estimated that the tax could generate THB 16 billion - THB 18 billion per year (0.9 - 1.0 percent of GDP) in fiscal revenue. Public debt rose to 61.3 -4.0 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 percent of GDP in January 2023. Note: Numbers in parentheses indicate shares in the CPI basket. Source: MOC; CEIC; World Bank staff calculations. The Thai baht depreciated the most among ASEAN currencies in February, and will remain highly volatile due Figure 7: Thailand’s Policy-US Fed Fund Rate Differential Widened to uncertainty over US monetary policy. The depreciation of (Percent) the Nominal Effective Exchange Rate (NEER) at 1.8 percent in 7.5 Sep 2022 Mar 2023 Inflation outlook February was the deepest among ASEAN peers. The decline 5.0 was driven by improved confidence in the US dollar on the back of Thailand’s current account deficit, expectations of more 2.5 1.251.25 1.501.75 aggressive Fed tightening, and the weaker-than-expected GDP 0.0 growth outcomes in Q4 2022. The THB 108.1 billion worth of -0.75 -0.75 portfolio outflows from the Thai bond and equity markets in -2.5 -1.25 -2.25 -2.00 February were the largest since April 2020. However, the -5.0 -3.25 collapse of Silicon Valley Bank has lowered expectations about Thailand South Indonesia Philippines Malaysia Korea the Fed tightening, causing the US dollar to fall and adding to the Source: CEIC; IMF WEO; World Bank staff calculations. volatility of the Thai. THAILAND MONTHLY ECONOMIC MONITOR | 2 News Highlights: Issues to Watch: • Thailand's baht currency is likely to remain highly • Tourism: Will China’s reopening boost foreign tourist volatile due to external factors (Reuters, Link). inflows by more than previously projected in 2023? • US banks' collapse was unlikely to have impact on the • Inflation: Will inflation continue to decline, despite rising Thai economy (Bangkok post, Link). demand? • Commerce, Industry and Banking Committee (JSCCIB) • Exports: How much will the global economic slowdown cut its export growth forecast to zero (Bangkok post,, Link). affect goods exports? Prepared by Warunthorn Puthong, under the guidance of Kiatipong Ariyapruchya and Ekaterine T. Vashakmadze. For further questions, please email wputhong@worldbank.org THAILAND MONTHLY ECONOMIC MONITOR | 3 Selected Economic and Financial Indicators 2022 2022 2023 2021 2022 Q1 Q2 Q3 Q4 Oct Nov Dec Jan Feb GDP and Inflation (%YoY) GDP growth (real) 1.6 2.6 2.2 2.5 4.6 1.4 Contribution to GDP growth: Private consumption 0.3 3.4 1.8 4.0 5.2 3.0 General Government consumption 0.6 0.0 1.1 0.4 -0.3 -1.3 Gross fixed capital formulation: Private 0.5 0.9 0.5 0.4 1.9 0.8 Gross fixed capital formulation: Public 0.2 -0.3 -0.3 -0.6 -0.5 0.1 Net Exports of goods and services -3.7 1.7 4.5 0.3 -0.8 2.6 Change in Inventory 1.5 -0.6 -2.9 0.4 1.7 -1.1 Residual and errors 2.1 -2.6 -2.6 -2.4 -2.6 -2.7 GDP, nominal (USD Billion) 506 496 130 123 119 125 GDP, nominal (THB Billion) 16,167 17,367 4,286 4,214 4,337 4,530 Consumer Prices Index: Headline 1.2 6.1 4.7 6.5 7.3 5.8 6.0 5.6 5.9 5.0 3.8 Consumer Prices Index: Core 0.2 2.5 1.4 2.2 3.1 3.2 3.2 3.2 3.3 3.1 1.9 Output Indicators Manufacturing Production Index (%YoY) 6.5 0.6 1.5 -1.1 7.9 -6.0 -4.3 -5.3 -8.4 -4.4 Capacity Utilisation (%) 63.3 62.8 66.8 61.2 62.8 60.3 60.1 61.3 59.6 62.3 Farm Production Index (%YoY) 2.0 1.0 2.7 3.0 -4.8 3.0 2.0 1.7 5.4 2.6 Service Index (%YoY) 0.3 12.9 9.0 13.3 16.1 13.1 15.1 13.0 11.2 13.8 Labor Market Unemployed workers (Thousand Persons) 748 527.0 607.6 546.6 491.4 462.5 Unemployment rate (%) 2.0 1.3 1.5 1.4 1.2 1.2 Underemployment/1 (Thousand Persons) 584 273 319 264 235 275.9 Underemployment (%) 1.5 0.7 0.8 0.7 0.6 0.7 Balance of Payments (USD million) Current account -10,646 -16,942 -2,447 -8,027 -7,688 1,219 562 -445 1,102 -2,002 Current account (% of GDP) -2.1 -3.5 -1.9 -6.5 -6.5 1.0 1.4 -1.1 2.7 -4.8 Trade Balance 32,354 10,814 7,186 2,509 -1,851 2,970 1,466 542 963 -2,670 Exports of goods (%YoY) 20.0 5.8 14.2 9.6 6.7 -7.5 -3.6 -5.5 -12.9 -3.4 Imports of goods (%YoY) 28.8 15.5 16.5 22.7 23.2 -0.3 3.1 8.2 -10.5 9.1 Service, primary and secondary Income -43,000 -27,756 -9,633 -10,536 -5,837 -1,751 -903 -987 139 668 Tourist Arrivals (Thousand Persons) 428 9,958 498 1,582 2,413 5,465 1,475 1,748 2,241 2,145 Financial account -5,980 3,738 -183 -3,485 - Financial account (% of GDP) -1.1 2.9 -0.1 -2.9 - Foreign direct Investment, net -4,511 1,964 -363 -353 - Portfolio flows -11,894 2,650 1,911 -765 - Others Investments 11,581 -734 -1,647 -2,816 - Central Government Budget (Fiscal Year, THB billion)/2 Revenue 2,857 2,992 632 883 833 684 232 205 247 249 Expenditure 4,124 3,845 840 892 925 1,076 453 259 365 293 Central Government balance -1,266 -852 -208 -9 -91 -392 -221 -53 -118 -44 Central Government balance (% of GDP) -7.9 -3.9 -4.8 -0.2 -2.1 -8.7 Public debt (% of GDP) 58.8 60.5 60.6 61.0 60.5 61.0 60.8 60.7 61.0 61.3 Financial Markets Indicators Policy rate (%) 0.50 1.25 0.50 0.50 1.25 1.25 1.00 1.25 1.25 1.50 1.50 M2 (%YoY) 6.0 5.20 5.9 6.1 4.7 4.10 4.0 4.3 4.1 3.2 - Household Debt (sa, % of GDP) 89.7 - 89.2 88.4 87.0 - SET Index 1,658 1,669 1,695 1,568 1,590 1669 1,609 1,635 1,669 1,671 1,622 Thai government bond yield, 10 year (%) 1.90 2.45 2.26 2.81 3.08 2.45 3.10 2.52 2.45 2.45 2.50 Foreign exchange reserve and FX forward position (USD billion) 279 246 273 251 228 246 229 239 246 252 245 USD/THB, end of period 33.42 34.56 33.30 35.30 37.91 34.56 38.03 35.37 34.56 32.79 35.15 THB NEER, average 117.4 115.5 116.7 116.0 113.5 115.8 113.0 115.9 118.4 121.9 119.9 1/ Underemployment accounts for workers who are occupied less than 35 hours per week and are available for additional work (defined by BOT). 2/ Fiscal Year 2023 begins in October 2022 and ends in September 2023, Fiscal Balance according to GFS. Source: Office of the National Economic and Social Development Council, Bank of Thailand, Office of Industrial Economics, Ministry of Industry National Statistical Office of Thailand, Fiscal Policy Office, Public Debt Management Office, Haver Analytics. THAILAND MONTHLY ECONOMIC MONITOR | 4