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23 Mar 2023

Econ Digest

KResearch maintains Thailand’s 2023 GDP growth projection at 3.7% amid a decline in the export outlook and promising tourism sector


        KResearch maintains Thailand’s 2023 GDP growth projection at 3.7%. However, its Thai export growth forecast has been downgraded to -1.2% from the previous -0.5%. Meanwhile, tourism will see a brighter outlook with a clear recovery of foreign tourist arrivals expected in 1Q2023. In KResearch’s view, the recent problems faced by some Western banks will have a limited impact on Thailand.
        Ms. Thanyalak Vacharachaisurapol, KResearch Deputy Managing Director, said, “Based on the latest data, the difficulties faced by small- and medium-sized US banks are set to be protracted. As long as these closely watched banks fail to fix their balance sheet woes, as evidenced by deposit concentration or interest rate risk management, depositors’ loss of confidence will persist.  Additionally, it may take some time before US policymakers can decide how to stave off the crisis as they wish to avoid tapping into taxpayers’ money. Likewise, any takeover of the troubled banks by other financial institutions is unlikely to occur soon. An eventual shutdown of these ailing banks may be almost inevitable. Nonetheless, the swift action taken by the Federal Reserve and other central banks to shore up liquidity in the system may prevent the situation from escalating into a global financial crisis. Going forward, close attention should be paid to the US authorities’ decisions on the improvement of its banking laws to ensure their stringent enforcement with small and mid-sized banks. Any new banking regulations that are enacted may prompt these banks to adopt a more prudent approach in their loan extension. The impacts would likely be reflected in their operating performance over the medium-term.
        Regarding the effects on the US economy, Ms. Nattaporn Triratanasirikul, KResearch Deputy Managing Director, is of the view that the US economy may grow at a slower rate due to the ongoing struggles of the banking sector. The US economy is highly likely to tip into a recession at some point during the second half of 2023. This concern is evident in the Fed’s slowing momentum in raising its policy rate by 0.25% at the Federal Open Market Committee (FOMC) meeting (March 21-22, 2023), as compared to the period prior to the emergence of US bank failures when markets expected the Fed to hike its policy rate by up to 0.50%. The further slowdown foreseen in the US economy may affect Thailand through trade channels, particularly the export sector. Meanwhile, Thailand’s inflationary pressures have eased in line with the ebbing energy prices, caused by the global economic downturn. Given this, KResearch has revised the 2023 headline inflation forecast downward to 2.8%, compared to the previous forecast of 3.2%.      
        However, Thailand’s favorable tourism numbers may help offset those impacts to a certain extent. It is expected that the country will welcome 28.5 million tourists during 2023, which is higher than our prior estimate of 25.5 million tourists. With this backdrop, KResearch has decided to maintain its GDP growth forecast at 3.7% for 2023 despite the numerous uncertainties surrounding the global economy that need to be closely monitored going forward.
        Regarding the Baht’s outlook, it is expected that the Thai currency will remain highly volatile in the second quarter of 2023 amid global uncertainties. However, the Fed’s less aggressive policy rate hikes may cause the Baht to strengthen. Meanwhile, Thailand’s Monetary Policy Committee is expected to raise its policy rate by 0.25% at its upcoming meeting on March 29, 2023.
        In fact, the recent problems faced by some Western banks have had a limited impact on Thailand. This is because Thai commercial banks have sound balance sheet diversification. For instance, their loan portfolios are larger than their investments, and are evenly distributed among retail, SME and corporate customers. Plus, their deposits are not concentrated in high net worth individual or large corporate clients, as is the case of some troubled US banks. Moreover, Thai commercial banks have sufficient levels of capital and liquidity, and remain competitive in the global arena while being under the close supervision of the Bank of Thailand and the Ministry of Finance.

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