According to UOB, Thailand's economy is expected to start the year slowly as the global economy recovers at a sluggish pace but is poised for a more rapid pickup in the second half of 2024. With a new government, fiscal stimulus packages, sustained tourism recovery, and a rebound in merchandise exports, the bank forecasts Thailand's Gross Domestic Product (GDP) to expand by 3.6 percent this year.
Mr. Enrico Tanuwidjaja, Economist at Global Economics and Markets Research, UOB, stated, "The country's key growth driver is external demand, coupled with resilient household consumption and an increase in government spending. This will continue to support the employment and income of workers, particularly those in the services sector, which is expected to bolster private consumption, while the improvement in service exports will lead to a stronger baht."
Thailand is expected to benefit from increased foreign direct investment (FDI) inflows, as evidenced by the surge in applications submitted to the Thailand Board of Investment (BOI). This trend is largely driven by ongoing supply-chain diversification amid geopolitical tensions and is expected to further stimulate private investment activities, aligning with the overall economic recovery.
"Overall, we project stronger GDP growth of 3.6 percent for this year, bolstered by a sustained rebound in foreign demand for Thai goods and services, resilient private consumption, and fiscal stimulus amid political and macroeconomic stability. However, the recovery could be derailed by downside risks stemming from geopolitical conflicts, a sharper-than-expected slowdown in the global economy, and China's uncertain economic recovery," Mr. Enrico added.
Tourism recovery and merchandise exports emerge as principal growth catalysts
Tourism recovery and merchandise exports are expected to be key growth drivers. According to UOB research, the full-year number of foreign tourists in 2023 reached 28.2 million, or 70 percent of the pre-COVID level in 2019. The continued recovery of the tourism sector is expected to support economic activity and drive growth in 2024.
This has been reflected in a healthy pace of expansion of the Service Production Index (SPI). UOB expects the government's visa-exemption policy, along with some remaining pent-up demand and the normalisation of air travel, to boost the number of foreign tourist arrivals to Thailand, which is estimated to reach 33 million (or 83 percent of the pre-pandemic level). On exports, despite a weak performance in 2023, the anticipated pickup in global trade should boost Thailand's merchandise exports this year, most notably in electronic products, motor vehicles and parts, as well as processed food.
Inflation to remain subdued
Inflation is expected to remain subdued. Thailand has recorded negative inflation rates for three consecutive months since October 2023, primarily due to the government's subsidies for energy and electricity prices, backed by favourable supply conditions of agricultural and food products. However, UOB expects the negative inflation trend to fade once the government's remaining subsidies and other short-term measures expire by April 2024.
Although the government plans to introduce fiscal stimulus measures, particularly the digital wallet scheme to boost aggregate demand, which could induce upward pressures on prices, UOB expects headline inflation to average at 1.6 percent in 2024 against the backdrop of a gloomy global outlook, easing global oil prices, and softer domestic demand.
Thai baht strengthens against US dollar
The Thai baht is forecasted to be one of the outperformers among regional currencies in 2024. Considering the plan to ease monetary policy by many central banks, Thailand's favourable underlying factors, including an improved growth outlook, current account surplus, stable interest rate profile, and sustained tourism recovery, will support the Thai baht's appreciation against the US dollar. UOB's USD/THB forecast is 34.80 for the first quarter before strengthening towards 33 by the year's end.
