Thailand Monthly Economic Monitor 23 February 2024 Philippines Monthly Economic Developments July 2023 DRAFT_LCM.docx Ear Thailand's economic recovery lagged further behind ASEAN peers as growth was a disappointing 1.7 percent in the fourth quarter and resulted in slower annual growth of 1.9 percent in 2023. Growth was hampered by weak external sector and delayed budget approval. In December, economic activity softened due to weak manufacturing, investment, and goods export. Inflation remained negative for the third consecutive month due to falling energy and food prices as well as energy subsidies. In this context, the Bank of Thailand held its policy rate. The fiscal deficit decreased due to the delayed budget approval. In January, the Thai baht remained stable against major trading partners, despite significant net foreign portfolio outflows. Economic growth in Q4 expanded slower than expected, Figure 1: The Recovery Path Diverged Further from due to weak manufacturing and public investment despite Peers (GDP index, Q4 2019 = 100, seasonally adjusted) robust private consumption. The economy expanded 1.7 130 Indonesia Malaysia percent (year-on-year), slightly higher than 1.4 percent in the Philippines Thailand previous quarter. On a quarterly basis, GDP decreased by 0.6 120 Vietnam percent (seasonally adjusted). Private investment improved 110 while manufacturing production continued to contract. The economy grappled with significant inventory rundown amidst 100 both external and domestic uncertainties. Public investment also took a hit due to delayed budget approval. Thailand's recovery 90 trajectory slowed notably compared to its ASEAN peers. Overall, 80 for 2023, the economy grew by 1.9 percent, down from 2.5 2019 2020 2021 2022 2023 percent the previous year. The outlook for 2024 is expected to Source: Haver Analytics, CEIC; World Bank staff calculations. be weaker than previously projected, at below 3.0 percent, due Figure 2: High Frequency Data Point to a Softening to dim export and public investment prospects. Recovery (Percent, year-on-year) High frequency data indicate a softening due to weak 45 Private Investment Index Exports (BOP) manufacturing, investment and good exports despite Manufacturing Production Index 30 robust domestic consumption. In December, private Private Consumption Index consumption continued to drive economic growth, supported by 15 enhanced consumer confidence, a steady labor market, and a 0 rebound in tourism. However, manufacturing production contracted for the fifteenth consecutive month, declining by 6.3 -15 percent year-on-year. Sluggish growth in goods exports and -30 limited public investment further subdued private investment Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 Jul-23 (Fig. 2). Source: Haver Analytics, CEIC; World Bank staff calculations. Figure 3: Tourism Recovery Remained Slow Tourism recovery has been bolstered by pickup in Chinese (Tourist arrivals, percent of the 2019 level) arrivals but per capita spending remained low. In January, 120 tourist arrivals posted 3.0 million, growing by 41.5 percent y-o-y Total China ROW 95.4 100 and reaching 82 percent of pre-pandemic levels (Fig. 3). The 80 visa-free policy for visitors from China and Kazakhstan, 81.6 implemented in September, contributed to this recovery. 60 47.5 However, per capita spending remained 26 percent below pre- 40 pandemic levels, at USD 1,100 per trip. Tourist arrivals are 20 projected to reach 90 percent of pre-pandemic levels in 2024, 0 with Chinese visitors expected to reach 62 percent of pre- pandemic levels. Source: CEIC; World Bank staff calculations. THAILAND MONTHLY ECONOMIC MONITOR | 1 Exports recovery slowed and continued to lag behind peers. Figure 4: Goods Exports Improved Slower Compared Goods exports growth slowed to 3.0 percent (year-on-year), to Peers in the Past Three Years (Index Q1 2020=100, seasonally adjusted) declining from the previous 3.9 percent. This deceleration was Indonesia Malaysia due to contractions in exports of agriculture, electrical Philippines appliances, and machinery, as well as a slowdown in electronic 160 Thailand exports to key markets like the EU, Japan, and the US. However, Vietnam exports to China, Hong Kong, and ASEAN expanded. Despite 110 recent recovery efforts, Thailand's exports continued to lag behind peers (Fig. 4). Thailand's limited benefit from the electronic upcycle and high global energy prices relative to its 60 Dec-20 Dec-21 Dec-22 Dec-23 Sep-20 Sep-21 Sep-22 Sep-23 Jun-20 Jun-21 Jun-22 Jun-23 Mar-20 Mar-21 Mar-22 Mar-23 ASEAN counterparts contributed to this trend. Source: Haver Analytics, CEIC; World Bank staff calculations. Foreign Direct Investment (FDI) has been supported by investment promotion efforts and shifting supply chains. In Figure 5: Application for Investment Promotion Q3 2023, net FDI inflows amounted to 1.1 percent of GDP, Pointed to Stronger FDI Inflows (Percent of GDP) marking a decrease from 1.8 percent of GDP in the same period 5.0 FDI last year. However, approved applications for FDI promotion in Application for investment promotion: approved 2023 indicated a stronger outlook for future FDI inflows. The 4.0 3.8 value of these applications increased 83 percent (year-on-year), 3.0 3.2 equivalent to 3.2 percent of GDP (Fig. 5). This growth is primarily 2.1 2.0 attributed to heightened investment interest in targeted 1.5 1.5 1.5 1.8 1.6 1.7 industries, notably electronics, food processing, tourism, and the 1.0 automotive sector, particularly in the electric vehicles (EV) 0.0 supply chain. The surge in applications within the electrical -1.0 appliances and electronics (E&E) industry was partly driven by 2015 2016 2017 2018 2019 2020 2021 2022 2023 the ongoing relocation of supply chains aimed at mitigating risks Note: average of Q1-Q3 for FDI in 2023 Source: CEIC; World Bank staff calculations associated with trade tensions. Figure 6: Inflation Declined in January The BOT kept the policy rate on hold as inflation dropped. (Percent Year-on-Year) In January, headline inflation declined from -0.8 percent to -1.1 Headline CPI percent (year-on-year). This decline was primarily driven by Vehicles & Vehicle Operation (1.6) Electricity, Fuel, Water Supply (4.5) ongoing energy subsidies, falling global energy prices, domestic Food & Non Alcoholic Beverages (1.4) fresh food prices, and a slow economic recovery (Fig 6). Cleaning Supplies (15.5) Apparel & Footwears (1.4) Thailand continued to post the lowest inflation among ASEAN Communication and Equipments (40.4) peers. Core inflation, which excludes energy and raw food, Shelter (5.7) remained stable at 0.5 percent, close to its pre-pandemic Recreation, Education and Religion… 2023 Medical & Personal Care (4.4) average from 2016 to 2019. In this context, the BOT maintained Tobacco & Alcoholic Beverages (15.2) Jan-24 its policy rate at 2.5 percent given subdued inflationary Transportation Services (2.2) pressures and sustained strong domestic demand. -5 -4 -3 -2 -1 0 1 2 3 4 5 Source: CEIC; World Bank staff calculations. The fiscal deficit decreased due to the delayed budget approval. In the first quarter of FY24 (October 2023 – December Figure 7: The Fiscal Deficit Narrowed Due to Delayed 2023), the central government’s fiscal deficit fell to a four-year Budget Approval in FY24 (Central government’s fiscal balance, GFS basis, percent of GDP) low (5.6 percent of GDP). This decline was attributed to the 35 0.0 ongoing delay in budget approval for FY 2024, which led to Revenue Expenditures Fiscal balance, RHS 30 minimal capital spending (0.1 percent of GDP) and moderated 25 -4 -5.0 current spending (Fig. 7). -8 -7 20 -11 -10.0 15 The Thai baht remained stable as the current account 10 -14 shifted to surplus, despite ongoing capital outflows. In -15.0 December, the current account turned positive, reaching 5 5 percent of GDP, with Q4 recording a surplus of 1.2 percent of 0 -20.0 Q1 FY20 Q1 FY21 Q1 FY22 Q1 FY23 Q1 FY24 GDP. This improvement was driven by a surplus in goods trade, Note: FY2024 start from October 2023 attributed to a decrease in the import bill. Additionally, deficits in Source: Fiscal Policy Office; World Bank staff calculations THAILAND MONTHLY ECONOMIC MONITOR | 2 services, primary, and secondary income narrowed, supported Figure 8: The Current Account Balance Remained by increased tourism receipts and income transfers (Fig. 8). In Below Pre-Pandemic Level (Percent of GDP) January, the Nominal Effective Exchange Rate (NEER) 20 Current Acct: Services, Primary and Secondary Income remained stable, in contrast to the depreciation of other major 15 Current Acct: Goods Current Account ASEAN currencies. This stability was linked to anticipated 10 improvements in the current account balance as tourist arrivals surged. However, net foreign portfolio outflows surged to THB 5 37 billion, marking the largest outflows in four months, primarily 0 due to outflows from the equity market. -5 -10 -15 Q1-17 Q1-18 Q1-19 Q1-20 Q1-21 Q1-22 Q1-23 Source: CEIC; World Bank staff calculations News Highlights: Issues to Watch: • Board of Investment predicts uptick in investment • Tourism: Will the number of Chinese tourists improve (Bangkok Post, Link). further with the implementation of the visa-free policy? • Digital wallet stalled for more studies (Bangkok Post, Link). • Output: Will manufacturing production improve after • Tourism sees strong start to the year with nearly 4 exports have started to pick up? million arrivals so far (The Nation, Link). • Politics: Will the delayed budget approval for FY24 lead to public investment contraction in 2024? Prepared by Warunthorn Puthong. For further questions, please email wputhong@worldbank.org THAILAND MONTHLY ECONOMIC MONITOR | 3 Selected Economic and Financial Indicators 2023 2023 2022 2023 Q1 Q2 Q3 Q4 Sep Oct Nov Dec Jan GDP and Inflation (%YoY) GDP growth (real) 2.5 1.9 2.6 1.8 1.4 1.7 Contribution to GDP growth: Private consumption 3.3 4.0 3.1 4.3 4.7 4.0 General Government consumption 0.0 -0.7 -0.9 -0.7 -0.9 -0.4 Gross fixed capital formulation: Private 0.8 0.6 0.5 0.2 0.7 0.9 Gross fixed capital formulation: Public -0.3 -0.3 0.3 -0.1 -0.3 -1.0 Net Exports of goods and services 1.6 3.0 1.4 2.5 7.9 0.6 Change in Inventory -0.5 0.0 0.0 -1.8 -7.1 -0.7 Residual and errors -2.6 -4.7 -1.8 -2.6 -3.7 -1.7 GDP, nominal (USD Billion) 496 515 133 126 126 130 GDP, nominal (THB Billion) 17,378 17,921 4,517 4,333 4,441 4,630 Consumer Prices Index: Headline 6.1 1.3 3.9 1.1 0.5 -0.5 0.3 -0.3 -0.4 -0.8 -1.1 Consumer Prices Index: Core 2.5 1.3 2.2 1.5 0.8 0.6 0.6 0.7 0.6 0.6 0.5 Output Indicators Manufacturing Production Index (%YoY) 0.6 -5.1 -3.7 -5.6 -6.3 -5.1 -6.3 -4.3 -4.6 -6.3 Capacity Utilisation (%) 62.8 59.1 63.8 57.7 58.0 56.7 58.1 56.8 58.1 55.3 Farm Production Index (%YoY) 2.1 0.1 2.2 0.8 -0.8 -1.9 1.3 -0.5 -2.8 -2.4 Service Index (%YoY) 12.8 8.8 13.5 9.0 6.8 5.9 5.4 5.9 6.2 5.6 Labor Market Unemployed workers (Thousand Persons) 527.0 421.1 429.1 401.2 - Unemployment rate (%) 1.3 1.1 1.1 1.0 - Underemployment/1 (Thousand Persons) 273 227.9 202.6 166.9 - Underemployment (%) 0.7 0.6 0.5 0.4 - Balance of Payments (USD million) Current account -15,742 6,572 3,496 -1,053 2,601 1,528 3,171 665 -1,244 2,107 Current account (% of GDP) -3.2 1.3 2.6 -0.8 2.1 1.2 7.5 1.5 -2.9 4.9 Trade Balance 13,543 16,972 4,478 3,650 5,393 3,452 3,813 1,265 -159 2,346 Exports of goods (%YoY) 5.7 -1.6 -3.8 -5.0 -2.0 4.6 1.0 7.0 3.9 3.0 Imports of goods (%YoY) 14.3 -2.7 0.5 -6.6 -10.7 6.1 -7.9 10.5 9.5 -1.7 Service, primary and secondary Income -29,286 -10,400 -982 -4,703 -2,792 -1,924 -642 -600 -1,085 -238 Tourist Arrivals (Thousand Persons) 9,895 28,099 6,478 6,437 7,089 8,095 2,131 2,197 2,637 3,261 Financial account 6,576 -9,998 -834.6 -4318.0 -4845.5 - Financial account (% of GDP) 1.3 -1.9 -0.6 -3.4 -3.8 - Foreign direct Investment, net 3,717 -3,361 -74 -2189 -1098 - Portfolio flows 5,767 -11,526 -5803 -1390 -4333 - Others Investments -3,163 4,921 4913 -764 772 - Central Government Budget (Fiscal Year, THB billion)/2 Revenue 2,993 3,224 678 925 915 710 402 256 208 246 Expenditure 3,795 3,794 922 893 902 1,024 362 441 249 334 Central Government balance -802 -570 -243 32 13 -314 40 -186 -40 -88 Central Government balance (% of GDP) -3.5 -3.1 -5.4 0.7 0.3 -7.1 Public debt (% of GDP) 60.5 62.4 61.3 61.7 62.4 61.3 62.4 62.1 61.9 61.3 Financial Markets Indicators Policy rate (%) 1.25 2.50 1.75 2.00 2.50 2.50 2.50 2.50 2.50 2.50 2.50 M2 (%YoY) 5.20 3.23 1.43 1.1 1.4 1.6 1.7 1.2 1.5 - Household Debt (% of GDP) 91.4 90.7 90.8 90.9 SET Index 1,669 1,416 1,609 1,503 1,471 1,416 1,471 1,382 1,380 1,416 1,365 Thai government bond yield, 10 year (%) 2.45 2.67 2.23 2.48 3.16 2.67 3.16 3.21 2.95 2.67 2.64 Foreign exchange reserve and FX forward position (USD billion) 246 255 252 249 242 255 242 241 249 255 252 USD/THB, end of period 34.56 34.22 34.10 35.59 36.56 34.22 36.56 36.00 34.95 34.22 35.43 THB NEER, average 115.5 116.0 120.3 119.8 119.9 119.2 118.9 117.7 119.8 120.1 119.7 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