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Team 9 Thailand Macroeconomy
Team 9 Thailand Macroeconomy
Diego Basantes
Luiza Brennand de Queiroz Campos
Xunzhang Huang
Youjung Lee
Shanteshwar Swami
Digit Wannissorn
2/27/2020
GSBA549: The Firm in the National and International Economy
for Dr. Baizhu Chen
Economic Assessment and Forecast - Thailand
Economic Assessment
• Thailand Economic growth hits five-year low in Q4 2019.
• Much of the GDP growth in 2019 was attributed to a sharp fall in imports.
• Private consumption growth in 2020 will be impacted by falling employment especially in
industrial sector, and farm income that would be affected from drought effect, as well as
growing vulnerabilities among households from elevated household debt.
• Thai exports started to show signs of stabilization. The Thai baht, which has appreciated
by more than 24% against its peers over the past 6 years.
Economic Forecast
• The coronavirus outbreak in China will affect Thailand in 2020. Thailand will experience slower economic
growth this year as a result of weaker Chinese demand for imports, and Thailand will be affected primarily
through a reduction in visitor arrivals.
• Thailand is experiencing the type of economic slowdown not seen since 2014. There had been tentative
signs of a rebound from a dismal 2019, but the coronavirus outbreak in China has derailed any such
hopes.
• Overall, the economy expanded by 2.4% in 2019. The Economist Intelligence Unit expects growth to
decelerate further in 2020, to 2%, amid the coronavirus outbreak in China in the early part of this year.
This deceleration will be driven primarily by a slump in services exports as the tourism sector bears the
brunt of the crisis. China is Thailand's largest single source of foreign tourists and reported cases of the
virus in the kingdom will also deter other nationalities from visiting.
Key takeaways
• Thailand will officially become an aged society in
2021 and its population is projected to reach
62.2 million by 2058.
• 64.6% of the population were between the age
20 and 64, more than half of them were women.
• Thailand’s jobless rate has held below 1% for
the most part since 2011 thanks to the
agricultural sector absorbing laborers and those
who can't find work.
Source: Statista
Thai economy was forecasted to grow 2.0 % in 2020
The ongoing trade war and corona virus triggered a Thai export slump, resulting in a domino effect on other domestic
sectors of the economy.
Key takeaways
Thai economy forecasted to grow 2.0 % in 2020 • The deceleration will be driven
primarily by a slump in services
2019F exports as the tourism sector bears
2020F the brunt of the virus crisis. China is
Thailand's largest single source of
2.80 2.00
foreign tourists.
5.60 • On private domestic demand, it was
4.20
foreseen a slowdown in private
2.90 investment due to a fragile export
2.20 1.70
recovery and feeble residential
1.80 2.20
construction activities on the back of
0.20 -0.20 the tightening LTV measure.
-0.50
• Private consumption in 2020F is
GDP growth
expected to slow down due to
stubbornly high household debt and
-3.30 more cautious lending by the
-5.30
commercial banks.
• Consequently, public investment in
infrastructure projects, public
Private Private Public Public consumption Exports Imports
consumption, and government
investment consumption investment stimulus measures are likely to be key
Source: SCB EIC (Outlook 4Q2019) factors in shoring up the Thai
Economic Outlook 2020 economic recovery in 2020. 5
The Bank of Thailand (BOT, the central bank) cut the policy interest
rate by 25 basis points to a historic low of 1% amid coronavirus
fears.
Policy rate (%) Why policy rate was cut..
• The committee cited a much weaker
Forecast growth outlook because of the economic
3.5 impact of the coronavirus, the delayed
annual budget and drought conditions in
3.0 many provinces.
• Inflation rates are likely to miss the lower bound
2.5 of the inflation target range (1%)
2.0 1.75 2020 Forecast
1.5 • In light of the developing outbreak in China,
1.50
which will derail Thailand's hopes for an
1.0 1.00 1.00
economic recovery in 2020, The Economist
Intelligence Unit now foresees another rate
0.5
cut later this year. However, the room for
0.0 expansionary monetary policy has reduced
Jan-10 Jan-12 Jan-14 Jan-16 Jan-18 Jan-20 Jan-22 with the interest rate already at a record low.
• Note that the lower financing cost might not
boost substantial new lending on the back of
rising economic uncertainties, but it is likely to
Source: BOT and SCB EIC (Outlook 4Q2019)
lower debt service expenses for households and
SME business in debt
Economic Outlook 2020 6
Key takeaways
• Thailand’s Real GDP has consistently grown for
years and is forecasted by the International
Monetary Fund to increase by 3.6% p.a. from
2018 to 2024.
• Thailand's Real GDP growth at 4.6% was faster
but real GDP per capita at US$3,589 was smaller
than average in 2018
• Thailand has the 83rd highest real GDP per
capita in 2018 and takes 38th place in global
competitiveness.
• Thailand's exports, among various other factors,
played a crucial role in the country’s recovery
from the 1997-1998 Asian financial crisis.
Exchange rate (THB/USD) The key factors influencing the value of the
Thai baht
Forecast • The Thai Baht reached a New 6-Year High in
37 2019 due to Thailand’s healthy current
36 account, reserves, and negligible inflation.
35 • Massive current account surplus
34 33 • Smaller policy rate cuts by Thai MPC
33
• Capital inflows to Thailand, resulting from
32
31 Thai Baht’s status as a regional safe haven
31
30 currency
29 30
Implication
28
Jan 16
Jan 17
Jan 18
Jan 19
Jan 20
Jul 18
Jul 19
Dec 20
Negative impact to Positive impact to
• The tourism sector • Import sector
• Export sector
Trade war
Source: TDRI
Economic Outlook 2020 13
Appendix – Institutional Voids
- In terms of enabling trade, Thailand was ranked 63rd/136; however, its foreign
market access was ranked 96th/136, showing signs of institutional voids.
Appendix - Policy trends
- The government will continue to accord a high priority to economic revival and to
pursue policies aimed at boosting the country's medium-to-long-term investment
prospects, including ramping up public spending on infrastructure.
- These include the development of the Eastern Economic Corridor (EEC),
based on new and upgraded transport links. The drive to boost investment
will also include the continuation of the sector-specific Thailand 4.0 industrial
policy, which will provide significant tax and working visa incentives for
foreign investors in knowledge intensive industries within and outside the
EEC. Both plans fit broadly with the 20-year National Strategy, the junta's
blueprint for the country's long-term social and economic development. This
policy will also manifest itself in the government's renewed pursuit of FTAs
and bilateral investment treaties with major trading partners.
Appendix - Fiscal policy
We expect the budget deficit to average the equivalent of 2.7% of GDP a year in
2020-24. Increased infrastructure spending and investments will form the bulk of
rising government spending, particularly in the early part of the forecast period. The
impact of these measures on widening the deficit will only be partially mitigated by
incremental tax reform. A revised schedule of property taxes, which came into effect
in January 2020, will provide a modest boost to revenue later in the forecast period.
Stronger trade growth in 2021-24 will boost revenue from import and export duties
and help to ensure that the deficit remains below 3% of GDP throughout the
forecast period. A likely increase in value-added tax (VAT) in the latter part of the
forecast period, from the current rate of 7%, will also bolster revenue. At the same
time, however, the government will offer generous tax breaks to companies
investing in the EEC and high-tech industries around the country, which should limit
the boost of the aforementioned reform to corporate tax revenue.
Appendix - Monetary Policy
The Bank of Thailand (BOT, the central bank) just cut its policy rate, the one-
day repurchase rate, to 1% in February 2020. The BOT's decision to cut the policy
rate was motivated by the coronavirus outbreak, flagging external sector, and
persistently low inflation. Another rate cut in 2020 will be justified by the BOT's
mounting concern about the strength of the Thai baht against the currencies of
major trading partners, amid monetary easing in other countries. We believe that
the BOT will hold off on further easing after the second quarter of 2020 owing to
concerns about the outbreak and domestic financial risks—not least high household
debt—following several years of low interest rates. Moreover, with the policy rate
down to 1% by then, the central bank is likely to conclude that further rate cuts will
have little positive impact on the real economy. The BOT will sanction rate rises in
2021-22 as domestic and external economic conditions strengthen, but even by the
end of this period of tightening the rate will remain low by historical standards.
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