Thailand Monthly Economic Monitor 24 September 2024 Philippines Monthly Economic Developments July 2023 DRAFT_LCM.docx Ear Economic activity improved, driven by external demand for exports and tourism. Manufacturing growth turned positive, supported by a surge in goods exports. However, internal drivers weighed on growth. Private consumption growth decelerated, impacted by stricter credit conditions. The acceleration of fiscal spending proved slower than expected, but a higher FY25 budget spending could support growth. The revised Digital Wallet is expected to boost GDP growth in the fourth quarter of 2024. The Thai baht appreciated driven by expectations of the Federal Reserve’s easing cycle and a persistent current account surplus. Inflation remained among the lowest in emerging markets, falling to 0.4 percent, due to lower energy prices; core inflation remained subdued due to weak domestic demand. Economic activity improved due to stronger exports and Figure 1: High Frequency Economic Indicators Improved in July tourism while private consumption slowed. In July, (Percent, year-on-year) manufacturing production turned positive for the first time in 50 Manufacturing Production Index Service Production Index three months, growing by 1.8 percent year-on-year due to a 40 Private Consumption Index strong pick up in goods exports (Fig. 1). Services remained a key 30 Goods Exports contributor to growth due to ongoing tourism recovery. Tourist 20 arrivals increased by 24.6 percent year-on-year, reaching 93.3 10 percent of the pre-pandemic levels. Visitors from China hit 70% 0 of pre-pandemic numbers, and ASEAN visitors continued to rise -10 since April (Fig. 2). However, private consumption remained -20 weak, with consumer confidence in August falling to a 13-month Jan-21 Jan-22 Jan-23 Jan-24 low amid slow credit growth due to stricter credit standards. The Source: Haver Analytics; CEIC; World Bank staff calculations. slow economic recovery and recent flood concerns further weighed on consumer confidence. Figure 2: Tourism Recovery Remained Slow (Tourist arrivals, percent of the 2019 level) 120 Total China ROW Goods exports growth accelerated as external demand, 100 particularly from the US, remained robust. In July, the goods 80 trade surplus narrowed as import growth outpaced export growth. Goods exports expanded by 15.3 percent year-on-year, 60 up from 0.3 percent previously, driven by electronics, machinery, 40 agro-manufacturing, and petroleum products (Fig. 3). However, 20 automobile exports fell sharply. Year-to-date, goods export 0 growth averaged 4.5 percent, on par with China and the Philippines. However, the recent contraction in the global Source: CEIC; World Bank staff calculations. Manufacturing Purchasing Manager Index raises concerns about slowing export demand in the coming months (Fig. 4). Import growth surged by13 percent year-on-year. Figure 3: Exports Growth Accelerated in line with Major Asian Exporters (Percent, year-on-year) Inflation declined due to falling energy prices. In August, -5.0 0.0 5.0 10.0 15.0 20.0 25.0 headline inflation fell from 0.8 percent to 0.4 percent year-on- Vietnam year, the lowest rate among emerging markets (Fig. 5). Energy Taiwan price inflation turned negative for the first time in four months, Korea despite a partial removal of the diesel price subsidy. Dubai crude Singapore Thailand oil prices dropped by 7.1 percent to USD 78 per barrel due to China concerns about weakening global demand, particularly from Philippines 2024 (Jan-Jul) China. Fresh food inflation edged up slightly, while core inflation, Malaysia Jul excluding energy and raw food, remained subdued at 0.6 Indonesia percent due to the persistent output gap. In August, the BOT kept Source: Haver Analytics; World Bank staff calculations. THAILAND MONTHLY ECONOMIC MONITOR | 1 the policy rate at 2.5 percent, with inflation expected to normalize Figure 4: Global Manufacturing PMI Contracted for the to its target by Q4. Second Month (Diffusion index) 65 US ISM Manufacturing The pace of fiscal expenditure has remained slow, but the 60 China Manufacturing PMI Manufacturing PMI: Global approved larger budget spending for FY25 could support growth, going forward. In July, the central government's fiscal 55 deficit (GFS basis) was 1.4 percent of GDP, the lowest in four 50 years, while revenue remained relatively stable. In the first 10 months of FY24, only 42 percent of the government's investment 45 budget was disbursed —well below the 75 percent target—due 40 to a seven-month delay in implementing the FY24 Budget (Fig. 6). In July, public debt reached 63.7 percent of GDP. Economic Source: CEIC; World Bank staff calculations. growth for the remainder of 2024 will in large part depend on the pace of budget execution. For FY25, the parliament approved Figure 5: Inflation Was Dragged by Falling Energy budget spending of THB 3.75 trillion (about 19 percent of GDP), Prices a 7.8 percent increase from FY24, including an additional THB (Percent Year-on-Year) 8.0 153 billion (0.8% of GDP) for economic stimulus measures 7.0 Energy Core inflation (Table 1). The government expects the fiscal deficit to widen to 6.0 Raw Food 4.4% of GDP due to higher spending, while revenue as a 5.0 Headline inflation 4.0 percentage of GDP is forecast to remain relatively stable. 3.0 However, it remains uncertain if the stimulus will also include the Target range of 1-3% 2.0 anticipated digital wallet program. 1.0 0.0 -1.0 The government adjusted the timing and scope of the digital -2.0 wallet program. The planned THB 10,000 universal digital Jan-22 Jul-22 Jan-23 Jul-23 Jan-24 Jul-24 Source: CEIC; World Bank staff calculations. money transfer for 45 million Thais is likely to be phased. For the initial phase in September, lower-income and vulnerable groups Figure 6: Public Investment Budget Execution was at with Social Welfare Cards will receive the cash transfer, costing Its lowest in Three Years in total THB 145 billion (0.8% of GDP). This rollout is expected (Percent of Capital Budget, Year-to-date) 80 to boost GDP growth in Q4. The World Bank’s preliminary estimates forecast that transfers could raise GDP growth by 0.3 2024 60 percentage points this year. The fiscal multiplier for transfer Average of 2021-2023 payments targeted at low-income households could be larger 40 than that for universal transfers, as lower-income groups tend to consume a higher proportion of their earnings. Meanwhile, the 20 implementation of the remaining THB 300 billion (about 1.6% of GDP) remains uncertain. 0 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Source: CEIC; World Bank staff calculations The Thai baht appreciated due to expectations of the Fed’s easing cycle and a current account surplus. In Q3, the Thai Figure 7: The Thai Baht NEER Appreciated in line with baht NEER appreciated by 3.1 percent, reaching the strongest the Malaysian Ringgit NEER (Percent) level since 2020 and mirroring movements in the Malaysian -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 Ringgit (Fig. 7). This appreciation was fueled by expectations of CNY the Federal Reserve beginning its easing cycle, a current account surplus, and stable policy outlook following a successful PHP cabinet formation. In the first two weeks of September, portfolio MYR investments recorded net inflows for the third consecutive THB month, driven by both sovereign bond and stock market IDR Q3-24 investments. KRW 2024, year-to-date Note: Q3 includes the first 2 weeks of September Source: Haver Analytics; World Bank staff calculations THAILAND MONTHLY ECONOMIC MONITOR | 2 Table 1: Budget Structure (THB million; Percent of GDP in parenthesis) FY 2023 FY 2024 FY 2025 Budget Actual Budget Budget 2,490,000 2,665,671 2,787,000 2,887,000 Total Revenues [14] [15] [14.9] [14.8] Total Expenditures 3,185,000 3,262,393 3,480,000 3,752,700 [17.9] [18.3] [18.7] [19.2] 2,402,540 2,610,244 2,540,469 2,704,575 Current expenditures [13.5] [14.6] [13.6] [13.8] 689,480 478,191 710,081 908,224 Capital expenditures [3.9] [2.7] [3.8] [4.6] -695,000 -596,722 -693,000 -865,700 Fiscal Surplus/Deficit [-3.9] [-3.3] [-3.7] [-4.4] News Highlights: Issues to Watch: • New Thai prime minister will prioritise stimulating a • Consumption: Will the government roll out the Digital sluggish economy and tackling stubborn debt problems Wallet scheme by Q4? (Reuters, Link). • Inflation: Will the partial removal of energy subsidies and • Thailand expects less than 40m to join handout scheme cash transfers put pressure on inflation? (Bangkok Post, Link). • Fiscal: Will accelerated budget execution lead to a • The floods, which occurred between August 16 and stronger economy in H2? yesterday, impacted 30 provinces (The Thaiger, 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 Apr May Jun Jul Aug 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 0.2 1.5 0.6 0.8 0.4 Consumer Prices Index: Core 1.3 0.8 0.6 0.4 0.4 0.4 0.4 0.4 0.5 0.6 Output Indicators Manufacturing Production Index (%YoY) -3.8 -5.2 -2.9 -3.5 -0.1 2.7 -1.5 -1.6 1.8 Capacity Utilisation (%) 59.6 58.4 57.4 60.4 57.7 55.5 59.5 58.3 58.8 Farm Production Index (%YoY) 1.4 0.7 1.2 -3.2 -2.1 -5.8 6.6 -7.0 -1.4 Service Index (%YoY) 8.6 6.9 5.1 3.9 5.0 5.3 4.1 5.6 6.9 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 9,605 3,800 3,655 2,613 2,553 -45 647 1,950 270 Current account (% of GDP) 1.9 3.0 2.8 2.0 2.1 -0.1 1.5 4.6 0.6 Trade Balance 19,379 6,707 4,900 1,610 5,539 265 2,825 2,449 861 Exports of goods (%YoY) -1.4 -1.3 5.4 -1.1 4.5 5.8 7.5 0.3 15.3 Imports of goods (%YoY) -3.4 -11.8 4.6 3.3 1.2 6.4 -2.2 -0.1 15.8 Service, primary and secondary Income -9,774 -2,906 -1,245 1,003 -2,986 -309 -2,178 -499 -591 Tourist Arrivals (Thousand Persons) 28,150 7,089 8,095 9,370 8,131 2,757 2,633 2,740 3,103 Financial account -13,929 -4720.0 -4056.0 -3980.9 - Financial account (% of GDP) -2.7 -3.7 -3.1 -3.1 - Foreign direct Investment, net -7,205 -1,140 -3,802 408 - Portfolio flows -13,080 -3,978 -1,909 -4,269 - Others Investments 6,427 585 1,692 3 - Central Government Budget (Fiscal Year, THB billion)/2 Revenue 3,224 912 717 698 963 261 317 385 248 Expenditure 3,745 850 1,019 738 1,054 256 454 345 269 Central Government balance -522 62 -302 -40 -91 5 -137 40 -21 Central Government balance (% of GDP) -2.9 1.4 -6.5 -0.9 -2.0 Public debt (% of GDP) 62.4 62.4 61.9 188.6 191.3 63.7 64.2 63.4 63.7 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 2.1 2.6 2.6 3.1 - Household Debt (% of GDP) 91.4 91.0 91.4 90.8 SET Index 1,416 1,471 1,416 1,378 1,301 1,368 1,346 1,301 1,321 1,359 Thai government bond yield, 10 year (%) 2.67 3.16 2.67 2.50 2.66 2.79 2.79 2.66 2.59 2.55 Foreign exchange reserve and FX forward position (USD billion) 255 242 255 253 253 249 253 253 258 262 USD/THB, end of period 34.22 36.56 34.22 36.47 36.85 37.06 36.73 36.85 35.76 33.97 THB NEER, average 119.8 119.9 119.2 118.8 117.2 116.8 117.2 117.6 118.8 121.5 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