Thailand Monthly Economic Monitor 22 October 2024 Philippines Monthly Economic Developments July 2023 DRAFT_LCM.docx Ear The economy decelerated slightly. Manufacturing and private consumption weakened while exports and tourism continued to support growth. Growth is projected to accelerate to 2.4 percent in 2024, with further improvement expected in the second half of the year driven by increased budget execution and goods exports. Despite low government investment disbursement, the THB 10,000 cash handouts for low-income households may stimulate growth. However, flooding poses downside risks to growth and may add to price pressure. Inflation edged up due to fresh food and core inflation. The Thai baht appreciated due to expectations of a Federal Reserve easing cycle and a current account surplus. The BOT unexpectedly lowered the policy rate by 25 basis points to 2.25 percent. Growth moderated due to weakened manufacturing Figure 1: High Frequency Economic Indicators Moderated in August production and private consumption, while exports (Percent, year-on-year) continued to support growth. In August, manufacturing 30.0 Manufacturing Production Index production contracted by 1.9 percent as domestic demand Service Production Index Private Consumption Index remained soft and the stock continued to be rundown due to the Goods Exports uncertain outlook (Fig. 1). The private consumption index was sluggish, growing only 0.5 percent year-on-year amid slow credit growth due to stricter credit standards. In Q2, this tightening of credit standards led to a decline of household debt to 89.6 percent of GDP. Consumer confidence index hit a 17-month low. -20.0 The slow economic recovery and recent flood concerns, Jan-22 Jan-23 Jan-24 particularly in the Northern and Northeastern regions, further Source: Haver Analytics; CEIC; World Bank staff calculations. weighed on consumer confidence. In contrast, external demand Figure 2: Tourism Recovery Remained Slow contributed to growth with services activity expanded, albeit at a (Tourist arrivals, percent of the 2019 level) slower pace, and goods exports growth remained solid. 120 Total China ROW 100 In 2024, growth is projected to accelerate to 2.4 percent, up 80 from 1.9 percent previously. Growth in the second half of the 60 year is expected to improve further with support from acceleration of budget execution and goods exports. Tourism 40 and private consumption will remain the key drivers this year, but 20 the pace is slowing. Tourism is projected to return to pre- 0 pandemic levels in mid-2025. Goods exports are expected to grow 2.4 percent this year (USD value), due to favorable global trade despite the slowing Chinese economy. In 2025, growth is Source: CEIC; World Bank staff calculations. projected to accelerate to 3.0 percent boosted by private Figure 3: the 3-Month Advance Hotel Booking Rate consumption and an investment rebound. Declined 40 Tourism remained a key contributor to growth, but the pace has been slowing. Tourist arrivals increased by 20.1 percent 30 year-on-year, reaching 86 percent of the pre-pandemic levels 20 (Fig. 2). However, tourism from China, the EU, South Korea, and ASEAN—especially Malaysia—has slowed. Visitors from China 10 reached 64 percent of pre-pandemic numbers. Flooding in the 0 North is expected to dampen tourist numbers in the coming Central South North Northeast June 2024 July 2024 months. In August, the three-month advance hotel booking rate August 2024 Average of 2017-2019 declined by 10 percent year-on-year, with bookings in Northern Source: CEIC; World Bank staff calculations. THAILAND MONTHLY ECONOMIC MONITOR | 1 and Northeastern Thailand at 78 and 66 percent, respectively (Fig. 3). Despite the worsening outlook, the impact of the floods Figure 4: Exports Growth Accelerated in line with Major Asian Exporters is expected to be limited by an anticipated increase in tourists (Percent, year-on-year) from China during the Golden Week holidays from October 1 to -5.0 0.0 5.0 10.0 15.0 20.0 7. Vietnam Taiwan Goods exports growth continued to expand but the outlook Korea Singapore 2024 (Jan-Aug) remained uncertain. In August, the goods trade surplus China Aug widened as export growth outpaced import growth. Goods Thailand exports expanded by 11.4 percent year-on-year, down slightly Philippines from 15.3 percent previously, driven by electronics, machinery, Malaysia agriculture and agro-manufacturing (Fig. 4). However, Indonesia automobile exports fell sharply for the second consecutive Source: Haver Analytics; World Bank staff calculations. month. Goods export growth averaged 4.8 percent, on par with Figure 5: Global Manufacturing PMI Contracted for the China (year-to-date). Nonetheless, the recent contraction in the Third Month in September global Manufacturing Purchasing Manager Index raises (Diffusion index) concerns about slowing export demand in the coming months Manufacturing PMI: Global 60 Services PMI: Global 50 (Fig. 5). Import growth moderated to 8.5 percent year-on-year. Thai Exports: Manufacturing, YoY (RHS) Inflation edged higher but remained among the lowest in 55 25 emerging markets. In September, headline inflation increased from 0.4 percent to 0.6 percent year-on-year, marking the lowest 50 0 rate among emerging markets (Fig. 6). Fresh food and core inflation edged up, reaching 2.3 percent and 0.8 percent, 45 -25 respectively. The increase in food prices was partly influenced by the impact of flood damage. In contrast, energy price inflation remained negative for the second consecutive month despite the Source: CEIC; World Bank staff calculations. partial subsidy reduction. Dubai crude oil prices dropped by 5.8 percent to USD 73.4 per barrel due to sluggish global demand, Figure 6: Inflation Stayed below BOT’s Target Range and at the Lowest Among Emerging Market Peers particularly from China. The removal of the diesel price subsidy (Percent Year-on-Year) has led to an improved State Oil Fund balance over the past two 10.0 Indonesia Malaysia Philippines Thailand months (Fig. 7). However, the government continued to 8.0 Vietnam subsidize electricity and cooking gas prices, especially for low- 6.0 income households, despite the recent THB 10,000 cash 4.0 handout program. 2.0 While the government's investment budget disbursement 0.0 remained low, the THB 10,000 cash handouts can boost -2.0 growth going forward. In the first 11 months of FY24, the -4.0 central government's fiscal deficit (GFS basis) reached 2.4 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 Jan-24 percent of GDP, a 5-year low, while revenue remained relatively Source: CEIC; World Bank staff calculations. stable. The government's investment budget disbursement reached only 50 percent, well below the average of 66 percent Figure 7: The State Oil Fund Deficit Narrowed over the past three years, due to a seven-month delay in LPG Oil Total implementing the FY24 Budget. The THB 10,000 cash handout 60 27.5 scheme has been distributed to 14.05 million Social Welfare 30 Card holders in September. These consumption-stimulus 0 measures, targeted at low-income households, can boost growth -30 -4.5 and aid poverty reduction in the short term, but will incur high -60 fiscal costs. The World Bank’s preliminary estimates suggest -90 -99.1 that these transfers could raise GDP growth by 0.3 percentage -120 points this year. In August, public debt reached 64.0 percent of -150 -125.2 GDP (Fig. 8), and it is projected to continue rising in line with a Jan-20 Jan-21 Jan-22 Jan-23 Jan-24 Source: OFFO; World Bank staff calculations. THAILAND MONTHLY ECONOMIC MONITOR | 2 widening budget deficit for FY25, estimated at 4.4 percent of Figure 8: The Public Debt is Projected to Rise GDP, due to increased spending, particularly for fiscal stimulus. 80 Indonesia Malaysia The Thai baht appreciated due to the Fed’s easing cycle and 70 Philippines Thailand* a current account surplus. In September, the Thai baht NEER 60 appreciated by 2.2 percent, reaching its strongest level since 50 2020 and the strongest among Asian peers (Fig. 9). This 40 appreciation was fueled by the Federal Reserve's decision to cut interest rates by 50 basis points in mid-September and a current 30 account surplus. In September, portfolio investments recorded 20 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 the highest net inflows in three months at THB 40 billion, driven by both sovereign bond and stock market investments. Note: *Projection for Thailand is based on MPO AM 2024 Source: IMF WEO; CEIC; World Bank staff calculations The Bank of Thailand (BOT) reduced the policy rate in Figure 9: The Thai Baht NEER Appreciated in line with response to tightened financial conditions. On October 16, the Malaysian Ringgit NEER for the first time in four years, the BOT lowered its policy rate by (Percent) -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 25 basis points to 2.25 percent. This cut aims to alleviate debt- servicing pressure resulting from recent tightening of credit USD standards and the appreciation of the Thai baht. The BOT CNY Q3-24 expects inflation to normalize by the end of 2024 and the 2024, year-to-date PHP economic recovery is projected to persist, driven by tourism, private consumption, and goods exports. MYR THB IDR Source: Haver Analytics; World Bank staff calculations News Highlights: Issues to Watch: • Thai Chamber of Commerce estimated the cost of flood • Consumption: How will the government roll out the damage at about 30 billion baht (ThaiPBS, Link). second phrase of Digital Wallet scheme? • Thai businesses are concerned about geopolitical • Inflation: Will the partial removal of energy subsidies and tensions effect on oil prices (Bangkok Post, Link). cash transfers put pressure on inflation? • Prime Minister will discuss plans for recovery and • Fiscal: Will accelerated budget execution lead to a economic stimulation in flood-affected provinces stronger economy in H2? (Bangkok Post, Link). Prepared by Warunthorn Puthong (Economist). For further questions, please email wputhong@worldbank.org THAILAND MONTHLY ECONOMIC MONITOR | 3 Selected Economic and Financial Indicators 2023 2024 2024 2023 Q3 Q4 Q1 Q2 May Jun Jul Aug Sep GDP and Inflation (%YoY) GDP growth (real) 1.9 1.4 1.7 1.6 2.3 Contribution to GDP growth: Private consumption 4.0 4.7 4.0 3.7 2.4 General Government consumption -0.7 -0.9 -0.4 -0.3 0.0 Gross fixed capital formulation: Private 0.6 0.7 0.9 0.8 -1.2 Gross fixed capital formulation: Public -0.3 -0.3 -1.0 -1.8 -0.3 Net Exports of goods and services 3.0 7.9 0.7 -1.6 3.1 Change in Inventory 0.0 -7.1 -0.8 0.2 -2.0 Residual and errors -4.7 -3.7 -1.7 0.7 0.2 GDP, nominal (USD Billion) 515 126 130 130 123 GDP, nominal (THB Billion) 17,922 4,441 4,631 4,621 4,517 Consumer Prices Index: Headline 1.3 0.5 -0.5 -0.8 0.8 1.5 0.6 0.8 0.4 0.6 Consumer Prices Index: Core 1.3 0.8 0.6 0.4 0.4 0.4 0.4 0.5 0.6 0.8 Output Indicators Manufacturing Production Index (%YoY) -3.8 -5.2 -2.9 -3.5 -0.1 -1.5 -1.6 1.6 -1.9 Capacity Utilisation (%) 59.6 58.4 57.4 60.4 57.7 59.5 58.3 58.8 58.3 Farm Production Index (%YoY) 1.5 0.7 1.3 -2.9 -1.7 6.8 -5.3 0.4 1.4 Service Index (%YoY) 8.6 6.9 5.1 3.9 4.8 4.6 4.3 6.1 5.4 Labor Market Unemployed workers (Thousand Persons) 395.2 401.2 329.3 407.7 429.1 Unemployment rate (%) 1.0 1.0 0.8 1.0 1.1 Underemployment/1 (Thousand Persons) 202.1 166.9 210.9 191.5 162.4 Underemployment (%) 0.5 0.4 0.5 0.5 0.4 Balance of Payments (USD million) Current account 7,412 3,140 3,685 2,451 839 -254 1,599 120 1,362 Current account (% of GDP) 1.4 2.5 2.8 1.9 0.7 -0.6 3.8 0.3 3.2 Trade Balance 19,379 6,707 4,900 1,610 5,539 2,825 2,449 861 2,442 Exports of goods (%YoY) -1.4 -1.3 5.4 -1.1 4.5 7.5 0.3 15.3 11.4 Imports of goods (%YoY) -3.4 -11.8 4.6 3.3 1.2 -2.2 -0.1 15.8 8.5 Service, primary and secondary Income -11,967 -3,567 -1,215 840 -4,699 -3,079 -850 -740 -1,081 Tourist Arrivals (Thousand Persons) 28,150 7,089 8,095 9,370 8,131 2,633 2,740 3,103 2,963 Financial account -11,864 -6179.7 -4552.6 -5097.2 -2748.3 Financial account (% of GDP) -2.3 -4.9 -3.5 -3.9 -2.2 Foreign direct Investment, net -7,159 -1,942 -3,470 1,301 -1,200 Portfolio flows -13,728 -4,168 -1,685 -4,494 -3,050 Others Investments 9,093 118 640 -1,779 1,637 Central Government Budget (Fiscal Year, THB billion)/2 Revenue 3,224 912 717 698 953 313 381 247 291 Expenditure 3,745 850 1,019 737 1,022 419 348 269 258 Central Government balance -522 62 -302 -39 -69 -106 33 -22 33 Central Government balance (% of GDP) -2.9 1.4 -6.5 -0.8 -1.5 Public debt (% of GDP) 62.4 62.4 61.9 188.6 191.3 64.2 63.4 63.7 64.0 Financial Markets Indicators Policy rate (%) 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50 M2 (%YoY) 1.79 1.1 1.4 1.7 2.4 2.6 2.6 3.1 2.0 - Household Debt (% of GDP) 91.4 91.0 91.4 90.7 SET Index 1,416 1,471 1,416 1,378 1,301 1,346 1,301 1,321 1,359 1,449 Thai government bond yield, 10 year (%) 2.67 3.16 2.67 2.50 2.66 2.79 2.66 2.59 2.55 2.47 Foreign exchange reserve and FX forward position (USD billion) 255 242 255 253 253 253 253 258 262 269 USD/THB, end of period 34.22 36.56 34.22 36.47 36.85 36.73 36.85 35.76 33.97 32.29 THB NEER, average 119.8 119.9 119.2 118.8 117.2 117.2 117.6 118.8 121.5 125.3 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 2024 begins in October 2023 and ends in September 2024, 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