Thailand Monthly Economic Monitor 17 January 2024 Philippines Monthly Economic Developments July 2023 DRAFT_LCM.docx Ear The economy sustained its gradual recovery, buoyed by strong private consumption and improving goods exports but hampered by contracting manufacturing production. The economy is projected to grow 2.5 percent in 2023 and accelerate to 3.2 percent in 2024. Inflation remained negative for the third consecutive month and stayed well below peers, primarily due to falling energy and food prices as well as energy subsidies. The marginal increase in the minimum wage for 2024 is unlikely to exert significant pressure on inflation. The planned fiscal stimulus measures are expected to provide a short-term boost to growth but will delay fiscal consolidation. In December, the Thai baht appreciated against major trading partners, although net foreign portfolio outflows were the largest in three months. Strong private consumption, recovering tourism, and goods Figure 1: Private Consumption Continued to Expand exports suggested stronger growth in Q4; however, While Production Continued to Contract (Percent, year-on-year) manufacturing contraction remained a drag. (Fig. 1). In 50 Manufacturing Production Index November, private consumption rose, driven by improved 40 Service Production Index consumer confidence, a stable labor market, and recovering 30 Private Consumption Index Goods Exports tourism. On the external front, goods exports expanded for the 20 fourth consecutive month at 4.9 percent (year-on-year). This was 10 due to exports in agriculture, electronics, metal and steel, and 0 machinery to markets such as the US, ASEAN, Hong Kong, -10 South Korea, and Taiwan. However, manufacturing production contracted in the past 14 months. The economy is projected to -20 Jan-21 Jan-22 Jan-23 grow by 2.5 percent in 2023 and 3.2 percent in 2024. Source: Haver Analytics, CEIC; World Bank staff calculations. Tourist arrivals surged in December and reached 80 percent Figure 2: Tourism Recovery Remained Slow (Tourist arrivals, percent of the 2019 level) of pre-pandemic levels, supported by the ongoing recovery China and the visa-free policy. The number of arrivals substantially Japan 78 80 Korea 74 73 75 71 73 71 increased to 3.2 million, representing 80 percent of the pre- Europe (Excl.Russia) 64 68 pandemic level, up from 78 percent in the previous month (Fig. Russia 57 58 59 USA 52 45 48 2). The visa-free policy for visitors from China, Kazakhstan, ASEAN India 34 34 India, and Taiwan may have helped. Thailand and China also Others 25 Total 19 announced a permanent mutual waiver of visa requirements 9 4 4 6 starting in March 2023. Although Chinese arrivals remained below pre-pandemic levels, they rebounded in December and Oct Oct Nov Dec Nov Dec Jan Jun Jul Jan Jun Jul Feb Mar May Feb Mar May Apr Aug Sep Apr Sep Aug surpassed 50 percent of the 2019 level. Overall, in 2023, total tourist arrivals reached 28 million or 70 percent of the 2019 level, 2022 2023 matching our expectations. Source: CEIC; World Bank staff calculations. Figure 3: Inflation Remained the Lowest in ASEAN Inflation was negative for the third consecutive month (Percent Year-on-Year) 10.0 Indonesia Malaysia primarily due to falling global energy prices and energy Philippines Thailand subsidies. In December, headline inflation declined from -0.4 8.0 Vietnam percent to -0.8 percent (year-on-year). The decrease was 6.0 attributed to lower energy and food prices, broad energy 4.0 subsidies, and a slow recovery. Due to these combined factors, 2.0 Thailand continued to exhibit the lowest inflation among ASEAN peers (Fig. 3). Core inflation (excluding energy and raw food) 0.0 continued to decline, reaching 0.6 percent, close to its pre- -2.0 pandemic average in 2016-2019. The contraction in producer -4.0 prices over the last ten months contributed to the downward Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 pressure on core prices. In November, the Bank of Thailand Source: CEIC; World Bank staff calculations. THAILAND MONTHLY ECONOMIC MONITOR | 1 maintained its policy rate at 2.5 percent. The central bank has Figure 4: Minimum Wage Rose 2.4 percent in January pursued monetary normalization to contain risks of underlying Daily Daily minimum Avg monthly price pressures potentially obscured by price controls, while minimum wage, private wage, Year wage (THB) Change, % Change, % Inflation supporting the economic recovery. 2010 165 2.0 6.1 3.3 2011 176 6.4 6.7 3.8 The recent minimum wage increase is unlikely to put 2012 245 39.4 16.6 3.0 2013 300 22.4 10.2 2.2 pressure on inflation. Effective from January 1, the average 2014 300 0.0 11.9 1.9 daily minimum wage increased by 2.4 percent (Fig. 4), ranging 2015 300 0.0 2.1 -0.9 from 330 to 370 baht depending on the province. While this 2016 300 0.0 1.1 0.2 2017 305 1.8 -0.3 0.7 increase was lower than the 5.0 percent hike observed in 2022, 2018 316 3.5 2.2 1.1 it corresponds with higher inflation and productivity trends (Fig. 2019 316 0.0 3.3 0.7 2020 321 1.6 1.6 -0.8 5). The estimation indicates that productivity remains below pre- 2021 321 0.0 0.9 1.2 pandemic levels, primarily due to a slow recovery in 2022 337 5.0 5.7 6.1 manufacturing production and services. While the modest 2023 337 0.0 1.5* 1.3 2024 345 2.4 na 1.1** minimum wage hike could provide relief to lower-income groups Note: *based on Q1-Q3 data, **World Bank’s projection facing increased living costs, its impact on inflation is anticipated Source: Haver Analytics, CEIC; World Bank staff calculations. to be limited as the increase in the real wage is not estimated to Figure 5: Labor Productivity Remained Below Pre- exceed labor productivity growth. Pandemic Levels (Output per employment, index, 2019 = 100) 110 Agriculture (6%) The fiscal deficit decreased due to the delayed budget Mining and utility (5%) approval, while revenue remained flat, despite the ongoing Manufacturing incl. construction (28%) 105 Services (63%) economic recovery. In the first two months of FY24 (October Total 2023 – September 2024), the central government’s fiscal deficit 100 fell to an average of 7.5 percent of GDP, down from the 8.8 percent in the previous year (Fig. 6). This decline is attributed to 95 the ongoing delay in budget approval for FY 2024 which resulted in almost no capital spending (0.1 percent of GDP) as well as a 90 moderation in current spending. Despite the higher income tax, 85 fiscal revenue remained relatively flat from the same period last 2017 2018 2019 2020 2021 2022 2023 year at 15.2 percent of GDP due to the decline in the custom tax Source: Haver Analytics, CEIC; World Bank staff calculations. revenue as well as the revenue loss from the diesel and gasohol excise tax cut. Subsidy spending declined from the previous Figure 6: The Fiscal Deficit Narrowed as Spending Declined Due to Delayed Budget Approval in FY24 year, mainly due to falling global energy prices. However, in (Central government’s fiscal balance, GFS basis, percent of GDP) November, financing the persistent State Oil Fund deficit 10 resulted in government-guaranteed agency debt rising by THB 5 10 billion (0.05 percent of GDP), bringing outstanding borrowing 0 to THB 65,000 (0.4 percent of GDP). Overall public debt decreased marginally to 61.9 percent of GDP, primarily due to -5 lower State Enterprise debt. -10 FY 2017-19 -15 FY 2022 The planned fiscal stimulus measures could potentially FY 2023 -20 provide a substantial short-term boost but incur substantial FY 2024 fiscal cost. The Prime Minister has outlined plans for a one-time -25 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep transfer of THB 10,000 (USD 286) via digital wallets to Thai Source: Fiscal Policy Office; World Bank staff calculations nationals aged 16 or above, with a monthly salary below THB 70,000 and bank deposits of less than THB 500,000. To fund this scheme, a THB 500 billion loan bill (2.7 percent of GDP) has been proposed, but still requires approval from Parliament and likely a constitutional court ruling. Challenges remain as the borrowing must be legally justified on grounds of an economic crisis or recession. Following approval, the measure is expected to take effect in May 2024. Economic growth may surpass baseline projections by 0.5-1.0 percentage points; public debt may reach 65-66 percent of GDP. THAILAND MONTHLY ECONOMIC MONITOR | 2 The Thai financial system remained resilient amid improved Figure 7: The Current Account Balance Increased in profitability while high household indebtedness prompted September (USD million) government relief measures. In Q2, the tier-1 capital adequacy 7500 ratio for Thai banks stood at 16 percent, well above the Basel III 5000 minimum requirement of 10.5 percent. Key liquidity indicators, such as liquid assets to short-term liabilities and the loan-to- 2500 deposit ratio, remained stable. Non-performing loan (NPL) ratio 0 remained low at 2.8 percent. While profitability remained below -2500 pre-pandemic levels, it showed ongoing improvement (i.e. return -5000 on assets (ROA) at 1.3 percent and return on equity (ROE) at 9.4 percent). In Q3, high household debt (90.9 percent of GDP) remained a potential vulnerability. In December, the government BOP: USD: Trade Balance introduced relief measures through Specialized Financing BOP: USD: Services, Primary Income & Secondary Income Institution (SFIs). The measure includes debt suspension and BOP: USD: Current Account Balance reduced interest rates, aimed at four categories of debtors, Source: CEIC; World Bank staff calculations covering 10.3 million people. The targeted groups include: (1) individuals affected by the Covid-19 pandemic; (2) those with substantial debts despite regular income; (3) individuals with unstable incomes impacting repayment capacity; and (4) those grappling with long-standing bad debts. The three-year debt moratorium for farmers alone is estimated to cost about THB 33 billion (0.2 percent of GDP). The government also approved soft loans to debtors struggling to repay loan sharks or non-system loan providers. Besides SFIs’ internal funding, the Cabinet has allocated THB 4.9 billion (0.03 percent of GDP) from the national budget to support these programs. The current account fluctuated and turned negative while the Thai baht appreciated in December due to the weakened US dollar. In November, the current account turned negative for the first time in four months (-2.9 percent of GDP). This shift was attributed to a goods trade deficit and deepening services, primary, and secondary income deficits (Fig. 7). In December, the Nominal Effective Exchange Rate (NEER) marginally appreciated by 0.2 percent, in contrast to the depreciation of other major ASEAN currencies. This appreciation was linked to the expected improved current account balance in December as tourist arrivals surged. However, net foreign portfolio outflows, totaling THB 19.5 billion, marked the largest outflows in three months, primarily due to substantial outflows from the bond market. News Highlights: Issues to Watch: • Government in difficulty over loan bill for digital wallet • Tourism: Will the number of Chinese tourists improve scheme (Bangkok Post, Link). further with the implementation of the visa-free policy? • PM outlines measures including lower interest rates, • Output: Will manufacturing production improve after debt suspension and consolidation (Bangkok Post, Link). exports have started to pick up? • Thailand and China will implement a reciprocal visa- • Politics: How long will the government transition process free scheme (Bangkok Post, Link). take, and will it delay budget disbursement in FY24? 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 Aug Sep Oct Nov Dec GDP and Inflation (%YoY) GDP growth (real) 2.6 2.6 1.8 1.5 Contribution to GDP growth: Private consumption 3.4 3.1 4.6 4.8 General Government consumption 0.0 -0.9 -0.7 -0.9 Gross fixed capital formulation: Private 0.9 0.5 0.2 0.6 Gross fixed capital formulation: Public -0.3 0.3 -0.1 -0.2 Net Exports of goods and services 1.8 2.0 2.1 8.0 Change in Inventory -0.6 -0.2 -1.5 -7.1 Residual and errors -2.6 -2.1 -2.8 -3.8 GDP, nominal (USD Billion) 496 133 125.8 126.4 GDP, nominal (THB Billion) 17,370 4,519 4,333 4,442 Consumer Prices Index: Headline 6.1 1.3 3.9 1.1 0.5 -0.5 0.9 0.3 -0.3 -0.4 -0.8 Consumer Prices Index: Core 2.5 1.3 2.2 1.5 0.8 0.6 0.8 0.6 0.7 0.6 0.6 Output Indicators Manufacturing Production Index (%YoY) 0.6 -3.7 -5.6 -6.3 -7.8 -6.3 -4.3 -4.7 Capacity Utilisation (%) 62.8 63.8 57.7 58.0 57.9 58.1 56.8 57.9 Farm Production Index (%YoY) 2.1 2.2 0.8 -0.8 0.6 1.3 -0.5 -2.6 Service Index (%YoY) 12.8 13.5 9.0 6.8 5.6 5.4 6.0 7.2 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 3,496 -1,053 2,601 484 3,171 665 -1,244 Current account (% of GDP) -3.2 2.6 -0.8 2.1 1.2 7.6 1.6 -2.9 Trade Balance 13,543 4,478 3,650 5,393 1,225 3,813 1,265 -159 Exports of goods (%YoY) 5.7 -3.8 -5.0 -2.0 -1.8 1.0 7.0 3.9 Imports of goods (%YoY) 14.3 0.5 -6.6 -10.7 -11.9 -7.9 10.5 9.5 Service, primary and secondary Income -29,286 -982 -4,703 -2,792 -740 -642 -600 -1,085 Tourist Arrivals (Thousand Persons) 9,895 6,478 6,437 7,089 2,468 2,131 2,197 2,637 Financial account 6,576 -834.6 -4318.0 -4845.5 Financial account (% of GDP) 5.0 -0.6 -3.4 -3.8 Foreign direct Investment, net 3,717 -74.4 -2188.6 -1097.6 Portfolio flows 5,767 -5803.0 -1390.0 -4332.9 Others Investments -3,163 4913.3 -764.2 772.2 Central Government Budget (Fiscal Year, THB billion)/2 Revenue 2,992 674 921 918 272 402 256 207 Expenditure 3,845 917 897 904 261 358 440 249 Central Government balance -852 -243 24 14 11 44 -184 -42 Central Government balance (% of GDP) -3.8 -5.4 0.5 0.3 Public debt (% of GDP) 61.0 61.3 61.7 62.4 61.8 62.4 62.1 61.9 Financial Markets Indicators Policy rate (%) 1.25 2.50 1.75 2.00 2.50 2.50 2.25 2.50 2.50 2.50 2.50 M2 (%YoY) 5.20 3.23 1.43 - 0.7 1.6 1.7 1.2 - 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 1,566 1,471 1,382 1,380 1,416 Thai government bond yield, 10 year (%) 2.45 2.67 2.23 2.48 3.16 2.67 2.73 3.16 3.21 2.95 2.67 Foreign exchange reserve and FX forward position (USD billion) 246 255 252 249 242 255 248 242 241 249 255 USD/THB, end of period 34.56 34.22 34.10 35.59 36.56 34.22 34.94 36.56 36.00 34.95 34.22 THB NEER, average 115.5 116.0 120.3 119.8 120.1 120.0 120.4 118.9 117.7 119.8 120.1 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