Thailand Monthly Economic Monitor 29 August 2024 Philippines Monthly Economic Developments July 2023 DRAFT_LCM.docx Ear Growth accelerated in Q2 to 2.3 percent, slightly above expectations, but the recovery continued to lag ASEAN peers. In June, data indicated a subdued recovery, with activity slowing and consumer confidence declining amid heightened political uncertainty. While manufacturing growth expanded modestly for the full quarter, June activity data shows a renewed decline, and the growth in tourist arrivals slowed. The trade deficit persisted, driven by lagging export recovery and rising imports, particularly from China. Inflation edged up slightly to 0.8 percent (y/y) but remained among the lowest in emerging markets. Fiscal spending accelerated despite political uncertainty; The Bank of Thailand maintained its policy rate while easing credit card repayment regulations to support households. The Thai baht appreciated, driven by expectations of the Federal Reserve’s easing cycle and a persistent current account surplus. Economic growth accelerated in Q2 and modestly Figure 1: Output Gradually Recover in the First Half of surpassed expectation. The economy expanded 2.3 percent 2024 (year-on-year), slightly higher than 1.6 percent in the previous (Index 2019 Q4=100) quarter. On a quarterly basis, GDP increased by 0.8 percent 130 Indonesia Malaysia Philippines Thailand (seasonally adjusted). Growth was boosted by sustained 120 Vietnam expansion in private consumption, and tourism recovery. Manufacturing output turned slightly positive for the first time in 110 seven quarters. In contrast, private and public investment 100 contracted sharply. There was a significant rundown of inventory amidst both external and domestic uncertainties. Goods exports 90 recovery remained slow. Thailand's recovery continued to lag ASEAN peers (Fig. 1). However, the economy is expected to 80 2019 2020 2021 2022 2023 2024 pick up in the remainder of 2024, driven by faster budget Source: CEIC; World Bank staff calculations disbursement and support from private consumption and tourism. Figure 2: High Frequency Data Indicate a Subdued Recovery (Percent, year-on-year) June high-frequency data suggest subdued momentum, Manufacturing Production Index Service Production Index marked by slowing activity and falling consumer confidence Private Consumption Index amid heightened political uncertainty. In June, manufacturing Goods Exports production contracted by 1.7 percent year-on-year, marking two months of consecutive decline (Fig. 2). Services remained a key contributor to growth due to ongoing tourism recovery, but its pace is slowing. Tourist arrivals slowed from 30.3 percent year- on-year to 22.3 percent, reaching 89.8 percent of the pre- -20.0 Jan-21 Jan-22 Jan-23 Jan-24 pandemic level. This slowdown was due to fewer visitors from Source: Haver Analytics; CEIC; World Bank staff calculations. China, ASEAN, India, and Korea (Fig. 3). Private consumption grew at a slower pace, in line with a decline in lending growth Figure 3: Tourism Recovery Remained Slow (Tourist arrivals, percent of the 2019 level) due to more stringent credit standards. Consumer confidence 120 also declined for the fifth consecutive month in July due to Total China ROW 100 99.9 concerns over high living costs, political uncertainty, and slow 89.8 economic recovery. The removal of the Prime Minister and his 80 cabinet are likely to impact the Digital Wallet program and budget 60 63.1 execution, further clouding the domestic consumption and 40 investment outlook. 20 0 The goods trade deficit persisted, driven by lagging goods exports recovery, high commodity prices, and rising Source: CEIC; World Bank staff calculations. THAILAND MONTHLY ECONOMIC MONITOR | 1 imports from China. In June, goods export growth slowed to Figure 4: Exports Growth Lagged Major Asian 0.3 percent year-on-year hampered by declines in agricultural Exporters (Percent, year-on-year) products, transport equipment, and electrical appliances, -5.0 0.0 5.0 10.0 15.0 20.0 despite a third consecutive month of expansion in electronic Vietnam exports. Overall, the recovery of goods exports in Thailand Taiwan lagged behind most major Asian exporters (Fig. 4). The goods Korea Singapore 2024 (Jan-Jun) trade balance (customs basis) remained in deficit for the past Philippines three quarters. A rising trade deficit with China, driven by weak China Chinese demand and increasing imports from China, contributed Thailand to the overall trade deficit but was partly offset by a higher trade Malaysia Indonesia surplus with the US, induced by trade diversion due the US- Source: Haver Analytics; World Bank staff calculations. China tensions (Fig 5). The July Global Manufacturing Purchasing Index (PMI) contracted for the first time in seven months, signaling a pessimistic export outlook. Figure 5: The Goods Trade Deficit Continued due to Increasing Deficit with China (Custom basis, USD Billion) Inflation edged higher but remained among the lowest in 20.0 China EU US emerging markets due to weak domestic demand and price Japan Others Total controls. In July, headline inflation inched up from 0.6 percent 10.0 year-on-year to 0.8 percent, marking the second lowest rate among emerging markets, trailing only behind China (Fig. 6). 0.0 Energy price inflation rose in line with the global oil price. Fresh food inflation saw a slight uptick. Meanwhile, core inflation— -10.0 which excludes energy and raw food—remained subdued at 0.5 percent, below the pre-pandemic average of 0.7 percent from -20.0 2016-2019, reflective of the lingering output gap. Inflation pressures were further contained by ongoing price controls. The Source: CEIC; World Bank staff calculations. government maintained the diesel price ceiling at THB 33 per liter and continued to subsidize electricity prices particularly for Figure 6: Inflation Was the Lowest Among Peers low-income households. (Percent Year-on-Year) Indonesia Malaysia Philippines Thailand Fiscal spending accelerated but political uncertainty Vietnam 6.0 increased. In the third quarter of FY 24 (April-June), the central government's fiscal deficit on a GFS basis rose to 2.2 percent of GDP, the highest in the same period last three years. This 1.0 increase followed a seven-month delay in budget approval, which led to accelerated current and capital expenditures, while revenue remained stable. Going forward, accelerated budget -4.0 execution now faces uncertainty following the recent change in Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 Jan-24 Source: CEIC; World Bank staff calculations. government. In June, public debt declined for the first time in six months, to reach 63.5 percent of GDP. This reduction was Figure 7: Budget Deficit Increased in Q3 of FY24 primarily due to the repayment of COVID-19-related borrowing (Percent of GDP) and decreased budget financing needs. 2020 2021 2022 2023 2024 2.0 The Bank of Thailand (BOT) maintained its policy rate while 0.0 -2.0 easing regulations on credit card debt repayment. In the -4.0 monetary policy meeting on June 12, the BOT assessed that the -6.0 current policy rate of 2.5 percent remained appropriate for -8.0 supporting economic and price stability, with inflation expected -10.0 to normalize to its target by Q4. However, household debt -12.0 remained as high as 90.8 percent of GDP in Q1 and NPL among -14.0 SMEs has been rising. To mitigate financial pressures on -16.0 Q1 (Oct-Dec) Q2 (Jan-Mar) Q3 (Apr-Jun) Q4 (Jul-Sep) households and SMEs, the BOT extended the reduced minimum Source: Haver Analytics; World Bank staff calculations monthly repayment rate for credit cards at 8 percent for an THAILAND MONTHLY ECONOMIC MONITOR | 2 additional year. This rate is scheduled to revert to the pre-Covid Figure 8: The Thai Baht NEER Appreciated in line with level of 10 percent at the end of 2025. the Malaysian Ringgit NEER (Percent) -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 The Thai baht appreciated due to expectations of the Fed’s IDR easing cycle and a current account surplus. In the first two 1H 2024 PHP weeks of August, the Thai baht NEER appreciated by 0.9 Jul-Aug percent, mirroring movements in the Malaysian Ringgit, while CNY other major Asian currencies depreciated (Fig 8). This THB appreciation was driven by expectations that the Federal KRW Reserve may begin its easing cycle sooner than anticipated. MYR Additionally, a surplus in the current account balance also Note: First 2 weeks of August supported the strength of the Thai baht. In July, Thailand Source: Haver Analytics; World Bank staff calculations witnessed portfolio investment inflows for the first time in nine months, driven by inflows to the sovereign bond market. News Highlights: Issues to Watch: • New Thai prime minister scrutinizing THB500 billion • Consumption: Will the government roll out Digital Wallet cash handouts (Bangkok Post, Link). scheme or other cash transfer program in Q4? • Only 45% of the government's investment budget was • Inflation: Will the partial removal of energy subsidies put disbursed during the first 10 months of FY24 (Bangkok pressure on inflation? Post, Link). • Fiscal: Will accelerated budget execution lead to • The NESDC now expects GDP growth of between 2.3% stronger economy in H2? and 2.8% this year (Reuters, 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 Mar Apr May Jun Jul 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 -0.5 0.2 1.5 0.6 0.8 Consumer Prices Index: Core 1.3 0.8 0.6 0.4 0.4 0.4 0.4 0.4 0.4 0.5 Output Indicators Manufacturing Production Index (%YoY) -3.8 -5.2 -2.9 -3.5 -0.2 -4.9 2.7 -1.5 -1.7 Capacity Utilisation (%) 59.6 58.4 57.4 60.4 57.8 62.3 55.5 59.5 58.4 Farm Production Index (%YoY) 1.4 0.7 1.2 -3.2 -2.1 -6.1 -5.8 6.6 -7.0 Service Index (%YoY) 8.8 6.9 5.9 6.2 7.8 5.0 8.5 7.5 7.4 Labor Market Unemployed workers (Thousand Persons) 395.2 401.2 329.3 407.7 - Unemployment rate (%) 1.0 1.0 0.8 1.0 - Underemployment/1 (Thousand Persons) 202.1 166.9 210.9 191.5 - Underemployment (%) 0.5 0.4 0.5 0.5 - Balance of Payments (USD million) Current account 9,605 3,800 3,655 2,613 2,553 337 -45 647 1,950 Current account (% of GDP) 1.9 3.0 2.8 2.0 2.1 0.8 -0.1 1.5 4.6 Trade Balance 19,379 6,707 4,900 1,610 5,539 975 265 2,825 2,449 Exports of goods (%YoY) -1.4 -1.3 5.4 -1.1 4.5 -10.2 5.8 7.5 0.3 Imports of goods (%YoY) -3.4 -11.8 4.6 3.3 1.2 5.4 6.4 -2.2 -0.1 Service, primary and secondary Income -9,774 -2,906 -1,245 1,003 -2,986 -638 -309 -2,178 -499 Tourist Arrivals (Thousand Persons) 28,150 7,089 8,095 9,370 8,131 2,983 2,757 2,633 2,740 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 3,224 912 717 698 957 250 256 318 383 Expenditure 3,745 850 1,019 738 1,054 259 256 454 345 Central Government balance -522 62 -302 -40 -98 -9 1 -136 38 Central Government balance (% of GDP) -2.9 1.4 -6.5 -0.9 -2.2 Public debt (% of GDP) 62.4 62.4 61.9 188.4 191.6 63.4 63.8 64.3 63.5 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 1.7 2.1 2.6 2.6 - Household Debt (% of GDP) 91.4 91.0 91.4 90.8 SET Index 1,416 1,471 1,416 1,378 1,301 1,378 1,368 1,346 1,301 1,321 Thai government bond yield, 10 year (%) 2.67 3.16 2.67 2.50 2.66 2.50 2.79 2.79 2.66 2.59 Foreign exchange reserve and FX forward position (USD billion) 255 242 255 253 253 253 249 253 253 258 USD/THB, end of period 34.22 36.56 34.22 36.47 36.85 36.47 37.06 36.73 36.85 35.76 THB NEER, average 119.8 119.9 119.2 118.8 117.2 118.1 116.8 117.2 117.6 118.8 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