Mr. Burin Adulwattana, Managing Director and Chief Economist, KASIKORN RESEARCH CENTER Co., Ltd. (KResearch), said, "The global economy is slowing down, impacting global trade. This is evident in the global manufacturing slowdown, especially in China and Germany, which are heavily reliant on exports. China is also hindered by an ailing property sector, which has hurt domestic demand. In the US, the Federal Reserve (Fed) is concerned about inflation. The economy continues to grow, and the Fed is expected to raise interest rates further this year keeping them higher than previously forecast in 2024."
It is expected that the Thai economy will grow slower than our prior estimate for 2023. KResearch, therefore, has cut its 2023 growth forecast for the Thai economy to 3 percent from 3.7 percent as global economic growth - particularly that of China - has seen a steady decline. Under these circumstances, the number of international tourist arrivals in Thailand are expected to reach only 27.6 million during 2023, and Thai merchandise exports may contract 2.5 percent, which would be worse than our prior estimate of (-)1 percent. Additionally, domestic demand will continue to be affected by the subdued recovery of the tourism sector, persistent slowdown in the manufacturing sector, and hefty household debt. As evidenced, NPLs classified as "Code 21", or debt overdue by more than 90 days caused by an unusual situation such as COVID-19, are set to rise. This has caused domestic demand to remain weak, as reflected in the ongoing contraction in domestic car sales and core inflation that has fallen below the Bank of Thailand's inflation target. KResearch expects that the Bank of Thailand will maintain its policy rate at 2.25 percent at the upcoming Monetary Policy Meeting slated for September 27, 2023.
The government's policies that have been announced and additional priorities will focus on short-term economic stimulus measures - including reduced living costs, a debt moratorium, and the 10,000-Baht digital wallet. These initiatives will help stimulate the Thai economy to a limited extent in 2023, but their positive impacts are likely to be more pronounced at the beginning of 2024. Regarding the Thai Baht outlook, KResearch believes that the Baht is set to weaken in the short term due to the widening interest rate differential between the US and Thailand. However, Thailand is expected to maintain its credibility for the time being. Nonetheless, the Baht's performance will depend heavily on Thailand's future economic growth and the government's fiscal discipline.
In the context where global trade protectionism has become more evident, there has been a rising trend of relocating production bases to the ASEAN region. However, Thailand has so far seen little benefit from this trend. Additionally, as the Thai economy is facing multiple structural challenges, the government must prioritize tackling such issues even as it implements the present "quick win" measures.