Thailand Monthly Economic Monitor 24 May 2022 The continued recovery of domestic demand and a supportive global environment induced the economy to grow by 2.2% in Q1 2022. However, the combined impact of the Ukraine war on prices and the global economy and the lockdown in China will set back the recovery in the second quarter. Inflation remained above the Bank of Thailand’s (BOT) target range, driven by energy and food prices, dragging consumer confidence to an eight- month low. The government continued to ramp up emergency spending to counter the impact of the pandemic and the Ukraine war. As a result, the deficit remained large, despite higher fiscal revenue. Foreign tourist arrivals continued to improve in March due to the lifting of entry restrictions but remained well below pre-COVID levels. The Thai baht depreciated in May as investor confidence waned and the current account deficit persisted. The economy grew faster than expected in Q1 2022, Figure 1: GDP Continued to Expand in Q1 (Contribution to GDP growth, percent year-on-year) supported by loosening COVID-19 restrictions, Private consumption Public consumption continued stimulus measures and strong exports (Fig. 1). 12% Investment Change in inventories The economy posted 2.2% (yoy) growth, up from 1.8% in the 8% Net exports GDP, %YoY previous quarter. On a quarterly basis, output increased by 4% 1.9% (qoq, sa). Private consumption grew 3.9% (yoy), up 0% from 0.4% in Q4 2021, amid the easing of COVID-19 containment measures and continued fiscal measures to -4% stimulate consumption. Net exports of goods and services -8% also contributed positively to growth, with the continued -12% expansion of goods export and international tourism receipts, -16% as well as slower import growth. However, overall output 1Q19 1Q20 1Q21 1Q22 remained below pre-pandemic levels and lagged behind Source: NESDC; World Bank staff calculations regional peers (Fig. 2) due to the sluggish tourism recovery. Figure 2: Output Lagged Regional Peers in Q1 Tourism-related output stayed subdued at 31% below its pre- (Index Q4 2019 = 100, sa) COVID-19 level. Despite this higher-than-expected output in 105 Indonesia Malaysia Q1, the impact of the Ukraine war on prices and the softening Philippines Thailand of global growth means that Thailand’s pace of economic 100 recovery in 2022 will remain slow. 95 Indicators of economic activity in the second quarter 90 show signs of a slowdown. The private consumption index 85 fell 0.9% (mom, sa) in March, while the consumer confidence index in April declined for the fourth consecutive month to 80 2019 2020 2021 40.7 pts, down 1.3 pts from the previous month (Fig. 3). Source: NESDC; CEIC; World Bank staff calculations Survey results show that the rising cost of living—in particular the rising energy costs due to the Ukraine war, and remaining Figure 3: Indicators Suggest a Slowdown (Index 2019 = 100, sa) COVID-19 concerns have affected consumer spending. The mobility index remained unchanged in April and May at - 110 16pts, despite the decline in new COVID-19 case to an 100 average of 8,193 cases per day during the first two weeks of 90 May, down from above 20,000 cases in March and April. In 80 contrast, the mobility index of regional peers improved 70 substantially as new cases dropped. The mobility indices in 60 Indonesia and the Philippines have surpassed their pre- 50 Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 pandemic levels. Manufacturing Production Index Private Consumption Index Consumer Confidence Index Private Investment Index, sa Source: CEIC; World Bank staff calculations THAILAND ECONOMIC MONITOR | 1 Goods exports expanded in March but weakening global Figure 4: Falling Global PMI Points to a Weaker demand weighs on the outlook. Goods exports increased Exports Outlook (Index, sa) by 18.9% (yoy), up from 16.0% in the previous month due to 60.0 125 higher exports of gold, agricultural and agro-manufacturing goods, as well as electronics, boosted by surging shipments 55.0 of hard disk drives. However, the global purchasing manager 50.0 index (PMI) in April indicates a weakening outlook for Thai 100 exports due to disrupted supply chains and exports as a result 45.0 of the lockdown in China and the war in Ukraine. The global 40.0 manufacturing PMI dropped to 52.2 pts, its lowest level in 20 Manufacturing PMI: Global Thai Exports Volume Index, 2019=100, 3mma, RHS months (Fig. 4), leading to a decline in the business sentiment 35.0 75 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 and causing a slowdown in manufacturing production and Source: CEIC; World Bank staff calculations private investment. Figure 5: Tourist arrivals from Asian Countries The tourism sector maintained its gradual recovery path Started to Rise in March as Their Borders Reopened (Thousand people) as the government eased border restrictions. Tourist arrivals stood at 210,836 in March, up from 152,954 in the 250 Others Middle East previous month. Tourism volume reached 7.7% of the same 200 Oceania USA period prior to the pandemic in 2019. Although arrivals from Russia 150 Russia declined, tourist arrivals from other European Europe (exclude Russia) ASEAN countries continued to increase; tourist arrivals from Asian 100 India countries, especially ASEAN and India, rose substantially as Korea Japan 50 their border restrictions were relaxed (Fig. 5). Tourist arrivals China are projected to increase to around 6 million in 2022 or 16% 0 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21 Jan-22 Feb-22 Mar-22 of arrivals in 2019. However, the recovery is likely to be gradual due remaining COVID concerns, continued travel Source: MOTS, CEIC; World Bank staff calculations restrictions by China, and the Ukraine–Russia war impact on travel sentiments. Figure 6: Inflation Surged Ahead of Peers (Percent year-on-year) Inflation continued to stay above the BOT’s target range, 6.0 driven by energy and food prices. Headline inflation fell slightly to 4.7% in April, after rising to a 13-year high in March 1.0 (5.7%) and remained higher than in regional peers (Fig. 6). Inflation continued to breach the BOT’s target range of 1-3% -4.0 for the fourth consecutive month. Energy price inflation Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 declined slightly in April as global oil prices edged lower. In Indonesia Malaysia Philippines Thailand contrast, raw food prices continued to rise to 3.5% (yoy), while Source: CEIC; World Bank staff calculations core inflation stayed at 2.0%. Rising energy prices are expected to continue to be the major contributors to higher Figure 7: Inflation Was Driven by Energy and Food headline inflation (Fig. 7), as the prices of electricity and Prices (Percent year-on-year) cooking gas are scheduled to increase further in May and 1.2 June. Though the cap on diesel price at THB 30 per liter was Headline CPI 4.7 Electricity, Fuel, Water Supply (5.5) removed on May 1, the government has raised the price to Vehicles & Vehicle Operation (15.2) only THB 32 per liter and plans to subsidize half of the diesel Food & Non Alcoholic Beverages (40.4) price above THB 30 per liter. However, inflation expectations Tobacco & Alcoholic Beverages (1.4) remain well-anchored, with expectations below 2% over the Cleaning Supplies (1.6) Transportation Services (1.4) short-term (1-year ahead) and medium-term (5-year ahead), Medical & Personal Care (5.7) according to the BOT survey of businesses and the Shelter (15.5) consensus forecast. Communication and Equipments (4.4) Apparel & Footwears (2.2) 2021 Jan-Apr 22 The fiscal deficit remained large as the government Recreation, Education and Religion (4.5) ramped up spending targeted at vulnerable groups. The -8.0 -4.0 0.0 4.0 8.0 12.0 16.0 central government deficit narrowed slightly from 10.6% of Source: MOC; CEIC; World Bank staff calculations THAILAND ECONOMIC MONITOR | 2 GDP in the first half of FY21 (Oct 2020-March 2021) to 9.3% Figure 8: Thai Baht REER Depreciated in May (Percentage change) of GDP in the first half of FY22. The deficit remained large, -4.0 -2.0 0.0 2.0 4.0 6.0 despite higher fiscal revenue as the government continued to VND 5.0 ramp up emergency spending to counter the impacts of the PHP 3.5 pandemic and the Ukraine war. These measures include the SGD 3.1 extension of the co-payment scheme which was announced 2.7 in January, cuts to employers' and employees’ contributions IDR THB 2.6 to the Social Security Fund, welfare subsidies targeting lower- -0.3 INR income groups, and subsidies on diesel and cooking gas -0.9 MYR prices. Public debt rose to 60.6% of GDP at the end of March -1.8 KRW Year-to-date 2022, up from 58.3% at the end of FY21, although it remained -2.4 TWD 1-13 May well below the debt ceiling of 70% of GDP. In the first half of -2.8 CNY FY21, the government borrowed THB 254 billion (0.7% of GDP) as part of the authorized off-budget borrowing of THB Source: J.P. Morgan; Haver Analytics; World Bank staff calculations 500 billion for the COVID-19 response, bringing the total borrowing for the COVID response during FY20-FY22 to THB Figure 9: Current Account Deficit Continued in Q1 (Percent of GDP) 1.3 trillion (7.8% of GDP). 20.0 15.0 The Thai baht depreciated in May amid fragile risk 10.0 sentiment and a continued current account deficit. The Real Effective Exchange Rate (REER) weakened by 0.2% 5.0 during the first two weeks of May, after appreciating by 2.9% 0.0 in the first four months of 2022 (Fig. 8). The Thai baht fell due -5.0 to global investor concerns regarding the possibility that the -10.0 Fed would aggressively tighten its monetary policy amid a -15.0 global economic slowdown. The continued current account Q1-15 Q1-16 Q1-17 Q1-18 Q1-19 Q1-20 Q1-21 Q1-22 deficit at 1.2% of GDP in Q1, also weighed on the Thai baht Current Acct: Services, Primary and Secondary Income (Fig. 9). Current Acct: Goods Current Account Source: SET; Thai BMA; CEIC; World Bank staff calculations Issues to Watch: News Highlights: • Inflation: Will rising prices derail the private • NESDC cut its economic growth target to 2.5% to 3.5%, consumption recovery? down from the 3.5% to 4.5% (Nikkei Asia, Link) • Tourism: Will the removal of border restrictions attract • Thailand Pass registration requirement will be retained but large inflows of foreign tourists, amid the ongoing the procedure will be streamlined.(Bangkok Post, Link) Omicron wave? • The government will continue to cap the diesel price at 32 • COVID-19: Will new COVID-19 cases and death baht, thanks to the increased diesel excise tax cut (Bangkok continue to decline? Post, Link) Prepared by Warunthorn Puthong, MTI, under the guidance of Kiatipong Ariyapruchya and Kim Alan Edwards. For further questions, please email wputhong@worldbank.org THAILAND ECONOMIC MONITOR | 3 Selected Economic and Financial Indicators 2021 2022 2021 2022 2021 Q2 Q3 Q4 Q1 Dec Jan Feb Mar Apr GDP and Inflation (%YoY) GDP growth (real) 1.5 7.7 -0.2 1.8 2.2 Contribution to GDP growth: Private consumption 0.2 2.7 -1.9 0.2 2.0 General Government consumption 0.5 0.2 0.3 1.2 0.6 Gross fixed capital formulation: Private 0.6 1.6 0.4 -0.2 0.5 Gross fixed capital formulation: Public 0.3 0.3 -0.5 0.1 -0.3 Net Exports of goods and services -4.1 -0.1 -9.2 0.5 3.1 Change in Inventory 0.0 1.4 7.2 -1.1 -1.6 Residual and errors 4.1 1.8 3.5 1.0 -2.1 GDP, nominal (USD Billion) 506 125 119 129 130 GDP, nominal (THB Billion) 16,179 3,914 3,918 4,294 4,302 Consumer Prices Index: Headline 1.2 2.4 0.7 2.4 4.7 2.2 3.2 5.3 5.7 4.7 Consumer Prices Index: Core 0.2 0.4 0.1 0.3 1.4 0.3 0.5 1.8 2.0 2.0 Output Indicators Manufacturing Production Index (%YoY) 6.5 21.0 -0.3 4.7 1.5 6.7 2.0 2.4 -0.1 Capacity Utilisation (%) 63.0 62.7 58.5 64.5 66.3 65.2 65.7 64.6 68.8 Farm Production Index (%YoY) 1.4 2.3 4.1 -1.1 5.0 0.9 0.9 8.7 5.3 Service Index (%YoY) -2.3 -0.6 -1.8 4.0 14.7 5.7 12.4 16.5 15.2 Labor Market Unemployed workers (Thousand Persons) 748 732 871.3 631.9 - Unemployment rate (%) 2.0 1.9 2.3 1.6 - Underemployment/1 (Thousand Persons) 584 469 778 438 - Underemployment (%) 1.5 1.2 2.1 1.2 - Balance of Payments (USD million) Current account -10,582 -2,478 -5,173 -1,709 -1,611 -1,611 -2,204 -652 1,245 Current account (% of GDP) -2.1 -2.0 -4.4 -1.3 -1.2 -3.8 -5.2 -1.5 3.0 Trade Balance 39,955 10,929 9,264 10,876 9,153 2,835 596 3,391 5,166 Exports of goods (%YoY) 19.6 36.4 15.7 21.3 14.6 23.0 7.9 16.0 18.9 Imports of goods (%YoY) 24.5 39.0 31.8 20.6 16.5 28.2 18.4 14.2 16.7 Service, primary and secondary Income -50,537 -13,407 -14,437 -12,586 -10,765 -4,446 -2,801 -4,043 -3,921 Tourist Arrivals (Thousand Persons) 428 20 45 342 498 231 134 153 211 Financial account -2,140 -1,927 2,636 2,293 - Financial account (% of GDP) -0.3 -1.5 2.2 1.8 - Foreign direct Investment, net -5,881 -1,726 -763 -4,495 - Portfolio flows -11,284 -3,757 158 2,012 - Others Investments 16,181 4,160 3,410 5,062 - Central Government Budget (Fiscal Year, THB billion)/2 Revenue 2,857 852 805 671 240 260 262 192 240 - Expenditure 4,124 936 1124 1232 374 414 311 244 374 - Central Government balance -1,266 -84 -319 -561 -133 -154 -48 -52 -133 - Central Government balance (% of GDP) -7.9 -2.2 -8.1 -13.1 -5.4 Public debt (% of GDP) 58.75 56.1 58.31 59.61 60.64 59.61 59.88 60.17 60.6 - Financial Markets Indicators Policy rate (%) 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 M2 (%YoY) 6.0 4.2 4.9 5.4 5.9 4.9 5.4 5.6 6.7 - SET Index 1,658 1,588 1,606 1,658 1,695 1,658 1,649 1,685 1,695 1,667 Thai government bond yield, 10 year (%) 1.90 1.57 1.89 1.90 2.26 1.90 2.11 2.15 2.26 2.72 Foreign exchange reserve and FX forward position (USD billion) 258 263 257 258 251 258 255 255 251 239 USD/THB, end of period 33.42 32.05 33.92 33.42 33.30 33.42 33.43 32.73 33.30 34.35 THB NEER, average 117.4 119.3 114.8 114.5 116.7 114.4 115.5 117.6 117.1 116.4 1/ Underemployment account for workers who work less than 35 hours per week and available for additional work (defined by BOT) 2/ Fiscal Year 2021 starts in October 2020 to September 2021, 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 ECONOMIC MONITOR | 4