Thailand Monthly Economic Monitor 24 February 2023 Growth decelerated more than expected to 1.4 percent in Q4 2022 amid the global economic slowdown. Goods trade contracted while manufacturing production and investment weakened. However, robust private consumption and tourism recovery continued to strengthen the outlook. Headline inflation declined but the second-round impact on domestic prices remained. This prompted the Bank of Thailand to continue monetary policy normalization and the government to extend energy-related subsidies. The current account balance returned to surplus in Q4 2022 on the back of substantially improved tourism receipts, supporting the Thai baht. Economic growth decelerated more than expected in the Figure 1: GDP Fell Below Pre-pandemic Levels (Index, Q4 2019 = 100, seasonally adjusted) fourth quarter following weakening goods trade despite resurgent private consumption. The economy expanded 1.4 Indonesia Malaysia 110 percent (yoy) down from 4.5 percent in the previous quarter. Philippines Thailand Falling goods exports dampened manufacturing production and Vietnam private investment. Government consumption continued to 100 contract. However, the recovering labor market and strong tourism inflows continued to support private consumption and 90 service exports. As a result, Thailand’s recovery path slowed and has diverged from ASEAN peers. On a quarterly basis, GDP 80 contracted by 1.5 percent (seasonally adjusted), after four 2016 2017 2018 2019 2020 2021 2022 Source: Haver analytics; World Bank staff calculations. consecutive quarters of expansion. Overall, in 2022, GDP grew 2.6 percent, up from 1.6 percent in 2021. In response, the Figure 2: Headline Inflation Declined due to Easing government trimmed the growth outlook for 2023 to 3.2 percent, Fuel and Raw Food Prices (Percent, year-on-year) down from 3.5 percent. 0 10 20 30 Headline inflation 5.9 Price pressures have broadened to core inflation, 5.0 potentially constraining consumption growth. Global energy Energy (12.4%) 11.1 14.6 prices declined but headline inflation remained high at 5.0 Raw Food (20.6%) 8.9 7.3 percent in January, above the Bank of Thailand’s target range of Core inflation Prepared Food (6.7%) 9.7 1-3 percent, after recording the highest inflation among major 8.9 2022 Public Transportation Services (4.3%) ASEAN economies in 2022 at 6.1 percent. Despite price 5.7 6.2 Dec, 2022 Jan, 2023 controls, core inflation (excluding raw food and energy) has Others (56%) 2.4 2.3 increased steadily since the beginning of 2022, and reached 3.0 percent in January, indicating rising second-round inflation (Fig. Note: Numbers in parentheses indicate shares in the CPI basket. Source: MOC; CEIC; World Bank staff calculations. 2). The consumer confidence survey in January indicated that the high cost of living remained a major concern for consumers. Figure 3: Tourist Arrivals Continued to Climb (Percent of the same period in 2019) Nonetheless, the consumer confidence index has risen, supported by the tourism recovery and rising farm incomes. The 90 Oct-22 Nov-22 Dec-22 77 80 76 central bank continued gradual monetary normalization, raising 66 69 72 65 70 the policy rate to 1.50 percent in January 2023. 57 62 61 60 52 54 48 50 The external sector continued to show signs of recovery 40 due to accelerated inflows of tourists, despite the sharp 30 contraction in goods exports. Tourism arrivals reached 57 20 6 percent of the pre-pandemic level in December 2022, up from 52 10 4 5 percent in the previous month, in line with regional peers (Fig. 0 Total China Europe ASEAN The rest 3). Although arrivals from China remained low in 2022, the Note: Europe includes Russia. Source: Haver Analytics; World Bank staff calculations. relaxation of Chinese travel restrictions is projected to provide a surprise boost to the 2023 growth outlook. Goods exports THAILAND MONTHLY ECONOMIC MONITOR | 1 contracted sharply by 13.0 percent (yoy) in December, down Figure 4: Goods Exports Weakened in Tandem with from a reduction of 5.5 percent the previous month, consistent Asian Peers (Percent, year-on-year, 3-month moving average) with ASEAN peers and weakening global demand (Fig. 4). 60 China Indonesia South Korea Malaysia 45 Philippines Taiwan The current account returned to surplus despite weak Thailand 30 goods exports, boosting confidence in the Thai baht. The current account recorded a surplus for the first time in eight 15 quarters at 1.0 percent of GDP, as service receipts recovered 0 (Fig. 5). The goods trade balance remains positive as falling -15 imports, mostly intermediate goods, more than offset the contraction in exports. The Real Effective Exchange Rate -30 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 (REER) surged 5.9 percent from October 2022 to January 2023, Source: Haver Analytics; World Bank staff calculations. ahead of ASEAN peers. Expectations of slower Fed tightening dampened confidence in the US dollar; and the relaxation of Figure 5: The Current Account Balance Returned to China’s travel restrictions boosted the outlook for the current Surplus in Q4 2022 (USD million) account. However, bond and equity markets recorded net 20 Current Acct: Services, Primary and Secondary Income outflows for the first time in four months in the first two weeks of 15 Current Acct: Goods Current Account February, after witnessing strong portfolio inflows from 10 November to January (Fig. 6). 5 0 The fiscal deficit narrowed but measures to alleviate rising -5 living costs limited the speed of consolidation and increased the public debt. The central government’s deficit -10 -15 narrowed to 7.8 percent of GDP in the first three months of FY23 Q1-17 Q1-18 Q1-19 Q1-20 Q1-21 Q1-22 (October-December 2022), down from 13.7 percent of GDP in Source: Haver Analytics; World Bank staff calculations. the same period last year, falling below the pre-pandemic levels. The falling deficit reflects slightly improved revenue collection Figure 6: Bond and Equity Markets Registered Outflows in February and lower overall expenditure, including capital spending. (THB billion) However, the cost-of-living support measures, including an 150 Thousands excise tax cut on diesel and delayed electricity price hikes, 100 limited the speed of consolidation. The government extended the excise tax cut on diesel of THB 5 per liter for another 4 months, 50 after the measure expired on January 30. This extension is - projected to cause an additional revenue loss of THB 31 billion -50 (0.19 percent of GDP), on top of the already incurred loss of THB Feb 1-14 -100 80 billion (0.47 percent of GDP) since the first cut in February TH: Equity Foreign net buy 2022. As a result, public debt rose to 60.7 percent of GDP in -150 TH: Bond Foreign net buy: Short-Term (TTM<=1Y) TH: Bond Foreign net buy: Long-Term (TTM>1Y) December 2022. -200 Jan 20 Jan 21 Jan 22 Jan 23 Source: Thai BMA; SET; CEIC; World Bank staff calculations In Q4 2022, commercial banking sector stability indicators remained strong and resilient. Overall, the stability and Figure 7: Special Mentioned Loans Stayed High liquidity level of the commercial banks registered in Thailand are Despite Gradual Decline (Percent of total commercial bank loans) well-managed. As of Q4 2022, total loans provisioned expanded 12 from the previous quarter by around 1.4 percent while the ratio 10 of NPL to total loans declined slightly to 2.73 percent. However, 8 the Stage 2 (Special Mentioned Loan) ratio of both households 6 and SMEs have been declining since its peak in Q1 2020 but 4 remained high (Fig. 7). The Bank of Thailand continued efforts to target and restructure private sector debt amid an expectation 2 of full recovery in their income stream as the economy recovers. 0 Q1-19 Q1-20 Q1-21 Q1-22 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 For example, the “Sustaining Household Debt Management Guidelines” was recently initiated by BOT to manage high Nonperforming Loans Special Mention Loans* household debt in a sustainable manner by providing long-term Note: *debt overdue exceeding 1 month but less than 3 months Source: Thai BMA; SET; CEIC; World Bank staff calculations debt restructuring, counseling services, and guidelines on THAILAND MONTHLY ECONOMIC MONITOR | 2 responsible lending. The average liquidity coverage ratio of the Thai commercial banks remained robust at 192.7 percent and the average capital adequacy ratio of the Thai commercial banks stood at 18.83 percent. In terms of growth, the average net interest margin (NIM) of the Thai commercial banks in Q4 2022 stood at 2.81 percent. News Highlights: Issues to Watch: • The Cabinet extended the 5 baht per liter diesel excise • Tourism: Will China’s reopening boost foreign tourist relief for an additional four months (NNT, Link). inflows by more than previously projected in 2023? • The state Oil Fuel Fund lowered its price cap on • Inflation: Will rising demand add pressure to core standard diesel (Bangkok post, Link). inflation? • Thai Q4 GDP unexpectedly falls and the NESDC • Exports: How much will the global economic slowdown downgraded its outlook for this year (Reuters, Link). affect goods exports? Prepared by Warunthorn Puthong, Sakulrat Bovornsantisuth, Ratchada Anantavrasilpa, 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 2022 2023 2021 2022 Q1 Q2 Q3 Q4 Sep Oct Nov Dec Jan GDP and Inflation (%YoY) GDP growth (real) 1.6 2.6 2.2 2.5 4.6 1.4 Contribution to GDP growth: Private consumption 0.3 3.4 1.8 4.0 5.2 3.0 General Government consumption 0.6 0.0 1.1 0.4 -0.3 -1.3 Gross fixed capital formulation: Private 0.5 0.9 0.5 0.4 1.9 0.8 Gross fixed capital formulation: Public 0.2 -0.3 -0.3 -0.6 -0.5 0.1 Net Exports of goods and services -3.7 1.7 4.5 0.3 -0.8 2.6 Change in Inventory 1.5 -0.6 -2.9 0.4 1.7 -1.1 Residual and errors 2.1 -2.6 -2.6 -2.4 -2.6 -2.7 GDP, nominal (USD Billion) 506 496 130 123 119 125 GDP, nominal (THB Billion) 16,167 17,367 4,286 4,214 4,337 4,530 Consumer Prices Index: Headline 1.2 6.1 4.7 6.5 7.3 5.8 6.4 6.0 5.6 5.9 5.0 Consumer Prices Index: Core 0.2 2.5 1.4 2.2 3.1 3.2 3.1 3.2 3.2 3.3 3.1 Output Indicators Manufacturing Production Index (%YoY) 6.5 0.8 1.6 -0.7 8.2 -5.7 3.3 -4.0 -5.1 -8.2 Capacity Utilisation (%) 63.0 62.6 66.5 61.1 62.6 60.2 63.3 59.8 61.1 59.7 Farm Production Index (%YoY) 2.0 1.0 2.7 3.0 -4.8 3.0 -3.0 2.0 1.7 5.4 Service Index (%YoY) 0.3 13.0 9.0 13.3 16.2 13.6 15.2 15.2 13.5 12.0 Labor Market Unemployed workers (Thousand Persons) 748 527.0 607.6 546.6 491.4 462.5 Unemployment rate (%) 2.0 1.3 1.5 1.4 1.2 1.2 Underemployment/1 (Thousand Persons) 584 319 264 235 - Underemployment (%) 1.5 0.8 0.7 0.6 - Balance of Payments (USD million) Current account -10,646 -16,942 -2,447 -8,027 -7,688 1,219 -56 562 -445 1,102 Current account (% of GDP) -2.1 -3.5 -1.9 -6.5 -6.5 1.0 -0.1 1.4 -1.1 2.7 Trade Balance 32,354 10,814 7,186 2,509 -1,851 2,970 1,431 1,466 542 963 Exports of goods (%YoY) 20.0 5.8 14.2 9.6 6.7 -7.5 8.4 -3.6 -5.5 -12.9 Imports of goods (%YoY) 28.8 15.5 16.5 22.7 23.2 -0.3 19.1 3.1 8.2 -10.5 Service, primary and secondary Income -43,000 -27,756 -9,633 -10,536 -5,837 -1,751 -1,487 -903 -987 139 Tourist Arrivals (Thousand Persons) 428 9,958 498 1,582 2,413 5,465 1,309 1,475 1,748 2,241 Financial account -5,980 3,738 -183 -3,485 - Financial account (% of GDP) -1.1 2.9 -0.1 -2.9 - Foreign direct Investment, net -4,511 1,964 -363 -353 - Portfolio flows -11,894 2,650 1,911 -765 - Others Investments 11,581 -734 -1,647 -2,816 - Central Government Budget (Fiscal Year, THB billion)/2 Revenue 2,857 3,014 632 883 855 687 362 239 207 241 Expenditure 4,124 3,888 840 892 968 1,024 410 452 258 315 Central Government balance -1,266 -874 -208 -9 -113 -337 -48 -213 -51 -73 Central Government balance (% of GDP) -7.9 -3.8 -4.8 -0.2 -2.6 -7.4 Public debt (% of GDP) 58.8 60.41 60.6 60.9 60.41 60.7 60.41 60.6 60.47 60.7 Financial Markets Indicators Policy rate (%) 0.50 1.25 0.50 0.50 1.25 1.25 1.00 1.00 1.25 1.25 1.50 M2 (%YoY) 6.0 - 5.9 6.1 4.7 - 4.2 4.0 4.3 4.0 - Household Debt (sa, % of GDP) 89.7 - 89.2 88.4 87.0 - SET Index 1,658 1,669 1,695 1,568 1,590 1669 1,590 1,609 1,635 1,669 1,671 Thai government bond yield, 10 year (%) 1.90 2.45 2.26 2.81 3.08 2.45 3.08 3.10 2.52 2.45 2.45 Foreign exchange reserve and FX forward position (USD billion) 279 246 273 251 228 246 228 229 239 246 252 USD/THB, end of period 33.42 34.56 33.30 35.30 37.91 34.56 37.91 38.03 35.37 34.56 32.79 THB NEER, average 117.4 115.5 116.7 116.0 113.5 115.8 113.6 113.0 115.9 118.4 121.9 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