Thailand Monthly Economic Monitor 27 October 2023 Philippines Monthly Economic Developments July 2023 DRAFT_LCM.docx The economy continued its moderate expansion, driven by private consumption and improving goods exports. However, the tourism recovery decelerated. Inflation remained significantly below peers; raw food prices fell and energy subsidies contained pressure on living costs. The planned fiscal stimulus measures will provide a short- term boost to growth but delay ongoing fiscal consolidation. The Bank of Thailand unexpectedly raised its policy rate to 2.50 percent. In September, the Thai baht depreciated against major trading partners. Strong consumption and improving goods exports Figure 1: Private Consumption Continued to Expand continued to support the ongoing recovery. In August, the and Exports Saw Smaller Contraction (Percent year-on-year) private consumption index maintained its expansion at 6.3 60 Manufacturing Production Index percent year-on-year, slightly down from 6.8 percent the Private Consumption Index 40 Goods Exports previous month. However, manufacturing production contracted Consumer Confidence sharply at 7.5 percent year-on-year. The higher consumer 20 confidence index in September reflects the continued recovery in private consumption (Fig. 1), supported by improvements in 0 the tourism and agricultural sectors, as well as government -20 subsidies aimed at stabilizing domestic energy prices. Improving goods exports are expected to support both manufacturing -40 production and private investment going forward. Jan-21 Jan-22 Jan-23 Source: Haver Analytics, CEIC; World Bank staff calculations. Goods exports remain subdued with an improving trend, Figure 2: Exports Showed a Smaller Contraction driven by manufacturing and agriculture. In August, goods (Percent year-on-year, 3-month moving average) exports contracted by 1.8 percent year-on-year, marking an 11- 60 China Indonesia month low. Nevertheless, this contraction was the smallest 45 Malaysia among major ASEAN exporters (Fig. 2). Manufacturing exports Philippines 30 turned positive for the first time in 11 months, driven by strong Thailand performance of electronics and vehicles. Agricultural exports 15 also expanded, supported by higher rice prices and an increase 0 in food products. In contrast, other exports, including gold and fishery contracted sharply. Exports to most major destinations -15 improved, including China, Japan, the US, while exports to -30 ASEAN and the EU declined. The September Manufacturing Jan-20 Jan-21 Jan-22 Jan-23 Purchasing Index (PMI) indicates a more optimistic outlook for Source: Haver Analytics; World Bank staff calculations. exports (Fig. 3). Figure 3: Manufacturing PMI Improved Among Major Trading Partners, including the US and China The tourism recovery continues to be sluggish, with arrivals (Diffusion Index) US ISM Manufacturing PMI from China significantly below pre-pandemic levels. Tourism China Manufacturing PMI arrivals declined in August to 2.47 million. When compared to 65 Thai Exports: Manufacturing, YoY (RHS) 75 pre-pandemic levels, these figures decreased from 77 percent to 72 percent after seasonal adjustment, marking the third 60 50 consecutive month of declines (Fig. 4). The number of visitors 55 25 declined across the board, particularly from China and Europe amid their ongoing economic slowdown. Looking ahead, the 50 0 implementation of a visa-free policy for Chinese and 45 -25 Kazakhstani visitors is expected to positively impact the tourism recovery. The policy is set to take effect from September 25, 40 -50 2023, to February 29, 2024. However, the recent shooting at a Jul-19 Jul-20 Jul-21 Jul-22 Jul-23 Source: CEIC; World Bank staff calculations. Bangkok shopping mall, which resulted in three fatalities, THAILAND MONTHLY ECONOMIC MONITOR | 1 including a female tourist from China, is expected to have a Figure 4: Tourism Recovery Slowed Further in August (Tourist arrivals, percent of the 2019 level, seasonally adjusted) negative impact on travelers' confidence. Mar-23 Apr-23 May-23 Jun-23 Jul-23 Aug-23 120 Inflation fell in September and remained at a regional low, 100 98 due to lower electricity and food prices. Headline inflation 82 80 72 decreased to 0.3 percent year-on-year, down from 0.9 percent the previous month. Thailand's inflation rate remained the lowest 60 among major ASEAN countries and the second lowest among 40 36 emerging markets, trailing only China (Fig. 5). Despite surging global oil prices, energy prices inflation declined largely because 20 of energy price subsidies. These subsidies included a reduction 0 in electricity prices, which decreased from THB 4.7 per unit to Total China (28%) ASEAN (27%) Europe (17%) Source: CEIC; World Bank staff calculations. THB 3.99 per unit starting in September, as well as a cap on diesel prices at THB 30 per liter. Raw food price turned negative Figure 5: Inflation Remained the Lowest in ASEAN for the first time in almost two years, driven by lower pork and (Percent Year-on-Year) vegetable prices, even in the face of rising rice prices. Excluding 10.0 Indonesia Malaysia energy and raw food, core inflation experienced a marginal 8.0 Philippines Thailand Vietnam decline from 0.8 percent to 0.6 percent. 6.0 The fiscal deficit reached a post-pandemic low, but the 4.0 budget proposal for FY 2024 indicates slower fiscal 2.0 consolidation. In the first eleven months of the fiscal year 2023 0.0 (October 2022 - August 2023), the central government's fiscal -2.0 deficit fell to 3.9 percent of GDP, a marked improvement over the 5.6 percent recorded in the same period last year (Fig. 6). -4.0 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 This reduction was attributed to a combination of reduced total Source: CEIC; World Bank staff calculations. expenditure and increased revenue. Public debt remained stable at 61.8 percent of GDP as of August. The cabinet proposed a Figure 6: The Fiscal Deficit Narrowed but Remained new budget for FY 2024, set at THB 3.48 trillion (19.2 percent of Above Pre-Pandemic Levels (Percent of GDP) GDP). This is THB 0.13 trillion (0.7 percent of GDP) higher than 10 the initial proposal made in January. Consequently, the budget 5 deficit for FY 2024 is expected to reach THB 693 billion (3.8 0 percent of GDP). This figure is close to the budget for FY 2023 and does not factor in the recently proposed short-term stimulus -5 measures, indicating a slower consolidation. However, the -10 proposed deficit plan is expected to become effective by April -15 2024, a significant delay from the start of the fiscal year in -20 FY 2017-19 FY 2022 FY 2023 October 2023. -25 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep The Bank of Thailand (BOT) raised the policy rate to its Source: Haver Analytics; World Bank staff calculations highest level since 2013 and revised up growth and inflation forecasts for 2024. On September 27, the BOT monetary policy Figure 7: Policy Rate Peaked Since 2014 (Percent) committee unanimously increased the policy rate by 25 basis Indonesia Malaysia 8.0 Philippines Thailand points to 2.50 percent (Fig. 7). Following eight consecutive rate United States hikes, the BOT stated that the policy rate had reached an 6.0 appropriate level to support long-term sustainable growth. The BOT also revised its inflation outlook, lowering it to 1.6 percent 4.0 for this year but increasing the forecast for 2024 to 2.6 percent. 2.0 This adjustment was attributed to the effects of El Niño on food prices and the government's stimulus measures. Furthermore, 0.0 the BOT revised its GDP growth forecast, down to 2.8 percent, while raising the forecast for 2024 up to 4.4 percent. -2.0 2017 2018 2019 2020 2021 2022 2023 Source: CEIC; World Bank staff calculations. THAILAND MONTHLY ECONOMIC MONITOR | 2 The current account turned slightly positive as the goods Figure 8: The Current Account Balance Turned trade surplus widened. In August, the current account Positive in August (USD million) registered a surplus of 1.0 percent of GDP due to the higher BOP: USD: Trade Balance trade surplus, whereas the services, primary and secondary 8000 BOP: USD: Services, Primary Income & Secondary Income income components continued to be in deficit (Fig. 8). In BOP: USD: Current Account Balance 6000 September, the Nominal Effective Exchange Rate (NEER) depreciated by 0.5 percent. This depreciation was linked to the 4000 US dollar appreciation, concerns within local markets about 2000 uncertainty surrounding new fiscal stimulus measures, and the persistent vulnerability of the current account balance. Net 0 foreign outflows from the equity and bond markets remained -2000 substantial in September. -4000 -6000 Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 Jul-23 Source: CEIC; World Bank staff calculations News Highlights: Issues to Watch: • Tourism: Will the number of Chinese tourists continue to • Chinese tourists lose confidence after the shooting decline throughout the remainder of 2023? incident at Siam Paragon shopping mall (Bangkok Post, • Inflation: Will inflation continue to decline, despite of Link). elevated demand and rising global oil prices? • Pheu Thai reaffirms digital wallet scheme will go ahead. • Politics: How long will the government transition process (Bangkok Post, Link). take, and will it delay budget disbursement in FY24 (Oct • Thai central bank unexpectedly hikes key rate, raises 23 to Sep 24)? 2024 growth outlook (Reuters, Link). 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 2023 2023 2022 Q3 Q4 Q1 Q2 Apr May Jun Jul Aug Sep GDP and Inflation (%YoY) GDP growth (real) 2.6 4.6 1.4 2.6 1.8 Contribution to GDP growth: Private consumption 3.4 5.2 2.9 3.1 4.6 General Government consumption 0.0 -0.3 -1.2 -0.9 -0.7 Gross fixed capital formulation: Private 0.9 1.9 0.8 0.5 0.2 Gross fixed capital formulation: Public -0.3 -0.5 0.1 0.3 -0.1 Net Exports of goods and services 1.8 -0.8 2.7 2.0 2.3 Change in Inventory -0.6 1.7 -1.3 -0.2 -1.7 Residual and errors -2.6 -2.6 -2.7 -2.1 -2.8 GDP, nominal (USD Billion) 496 119 125 133 125.7 GDP, nominal (THB Billion) 17,370 4,337 4,533 4,519 4,330 Consumer Prices Index: Headline 6.1 7.3 5.8 3.9 1.1 2.7 0.5 0.2 0.4 0.9 0.3 Consumer Prices Index: Core 2.5 3.1 3.2 2.2 1.5 1.6 1.5 1.3 0.8 0.8 0.6 Output Indicators Manufacturing Production Index (%YoY) 0.6 7.9 -6.0 -3.7 -5.6 -8.7 -3.0 -5.0 -4.7 -7.5 Capacity Utilisation (%) 62.8 62.8 60.3 63.8 57.7 53.6 60.3 59.2 58.1 58.2 Farm Production Index (%YoY) 2.1 -1.7 1.7 5.1 1.9 7.9 -5.4 3.1 0.2 2.1 Service Index (%YoY) 12.8 16.3 12.6 13.4 9.5 9.5 10.4 8.6 9.9 7.8 Labor Market Unemployed workers (Thousand Persons) 527.0 491.4 462.5 421.1 429.1 Unemployment rate (%) 1.3 1.2 1.2 1.1 1.1 Underemployment/1 (Thousand Persons) 273 235 275.9 227.9 202.6 Underemployment (%) 0.7 0.6 0.7 0.6 0.5 Balance of Payments (USD million) Current account -15,742 -7,305 743 2,028 -2,534 -240 -3,162 868 -508 401 Current account (% of GDP) -3.2 -6.1 0.6 1.5 -2.0 -0.6 -7.5 2.1 -1.2 1.0 Trade Balance 13,543 -918 4,180 2,945 2,153 80 55 2,018 355 1,225 Exports of goods (%YoY) 5.7 6.5 -7.5 -4.5 -5.6 -4.9 -5.9 -5.9 -5.5 -1.8 Imports of goods (%YoY) 14.3 21.4 -2.3 2.0 -5.0 -3.6 -1.9 -9.3 -12.0 -11.9 Service, primary and secondary Income -29,286 -6,388 -3,437 -917 -4,686 -320 -3,216 -1,150 -863 -823 Tourist Arrivals (Thousand Persons) 9,895 2,412 5,430 6,478 6,437 2,182 2,014 2,241 2,491 2,468 Financial account 6,576 -1,870 5300.2 -667.4 -2455.2 Financial account (% of GDP) 5.0 -1.6 4.3 -0.5 -2.0 Foreign direct Investment, net 3,717 131 1526.4 -17.3 -2163.7 Portfolio flows 5,767 -677 1965.4 -5803.0 -1353.4 Others Investments -3,163 -1,774 1777.7 5023.4 1037.2 Central Government Budget (Fiscal Year, THB billion)/2 Revenue 2,992 833 698 674 921 258 304 359 244 265 Expenditure 3,845 925 1,073 920 887 255 248 384 287 269 Central Government balance -852 -91 -375 -246 34 2 56 -24 -43 -4 Central Government balance (% of GDP) -3.9 -2.1 -8.3 -5.4 0.8 Public debt (% of GDP) 61.0 60.5 61.0 61.3 61.7 61.8 62.0 61.7 61.69 61.78 Financial Markets Indicators Policy rate (%) 1.25 1.00 1.25 1.75 2.00 1.75 2.00 2.00 2.00 2.25 2.50 M2 (%YoY) 5.20 4.7 4.10 3.23 1.43 1.9 1.4 1.0 0.9 0.8 - Household Debt (% of GDP) 91.4 91.5 91.4 90.6 SET Index 1,669 1,590 1,669 1,609 1,503 1,529 1,534 1,503 1,556 1,566 1,471 Thai government bond yield, 10 year (%) 2.45 3.08 2.45 2.23 2.48 2.47 2.48 2.48 2.53 2.73 3.16 Foreign exchange reserve and FX forward position (USD billion) 246 228 246 252 249 252 249 249 252 248 242 USD/THB, end of period 34.56 37.91 34.56 34.10 35.59 34.14 34.73 35.59 34.25 34.94 36.56 THB NEER, average 115.5 113.5 115.8 120.3 119.8 119.5 120.6 119.3 120.2 120.4 118.9 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