Faster growth thanks to domestic demand and tourism
Thailand’s economic growth is set to accelerate in 2023, allowing real GDP to finally exceed its pre-pandemic (2019) level. Tourism-related sectors will continue to recover thanks to the lifting of mobility restrictions both globally and domestically. In 2022, international tourist arrivals in the January-November period were 25% of those posted in the same period in 2019, while this share was only 0.6% in 2021. In 2023, tourism should also benefit from the reopening of the Chinese borders as China was the top source of international tourists before the pandemic (27.6% of the total in 2019). Tourism recovery will help the labour market improve and will consequently support private consumption (55% of GDP in 2021).
Although the unemployment rate remained higher than in 2019 when it averaged 1%, it nevertheless declined from a 16-year high of 2.3% in the third quarter of 2021 to 1.2% in the same period in 2022. Inflation is expected to significantly decline from a 14-year high in 2022, thereby easing the drag on private consumption.
In that regard, the Bank of Thailand adopted a relatively slow pace of monetary tightening in 2022, introducing three 25-basis point hikes. The Thai central bank is likely to continue its rate hiking cycle in the first part of 2023. Any monetary tightening action could weigh on household spending, which is pinched by a high level of indebtedness (86.8% in the third quarter of 2022). Despite rising interest rates, private investment should remain robust amid economic recovery. Global headwinds may, however, weaken some export-oriented industries such as electronics. Meanwhile, public investment will be driven by public spending on infrastructure, notably in the high-speed railway project linking Bangkok and Nong Khai, on the border with Laos.
Current account set to swing back to surplus
The Thai fiscal deficit remained large in fiscal year 2022 (FY22) due to pandemic-related support measures and the introduction of new measures to alleviate the impact of rising commodity prices, notably energy. In 2023, the fiscal balance is expected to continue to improve slowly. The government announced higher public spending for FY23 at THB 3.2 trillion, i.e., 8.5% above the budget disbursement in FY22. Public investment will contribute to the rise as the country has planned a pipeline of 77 mega-infrastructure projects worth THB 1 trillion (USD 30 billion) between 2020 and 2027 to increase connectivity and support long-term economic development. Meanwhile, the focus of fiscal measures to help households and businesses cope with economic scarring from the pandemic and elevated inflation will be targeted more towards low-income households and vulnerable groups. On the revenue side, the forecast economic recovery is set to boost revenue collection. Nevertheless, tax cuts were introduced to support the economy (cuts in land and property taxes, and in the jet fuel tax). Public debt has exceeded 60% of GDP since FY22. It will increase slightly in 2023, although remain below the debt ceiling of 70%. Risks surrounding this significant rise during the pandemic have been limited by the debt profile. Debt is mostly long-term (85.5% of the total as of the end of FY22) and domestic (98.2%).
After registering a wider deficit in 2022 with the rise in global energy prices, the current account should return to surplus in 2023 thanks to a rebound in tourism. Meanwhile, the goods trade balance will remain in deficit, as energy prices are expected to remain high and a global economic slowdown would weaken export performance. The current account surplus would prevent a further depletion in foreign exchange reserves on back of capital outflows. Although foreign exchange reserves are adequate (8 months of imports in November 2022), they significantly decreased from US$ 222 billion in January to US$190 billion in November 2022. The surplus would also support the baht, which has weakened against the USD (- 4% on average in December 2022 vs. end-2021).
Uncertainties lie ahead of the 2023 general election
While protests calling for reforms to the monarchy and the resignation of Prime Minister Prayut Chan-ocha receded in 2022, the government has continued to face mounting public and political discontent. In July 2022, the PM and his government survived its fourth no-confidence vote since taking office in 2019. The next election is scheduled for May 2023. Not being a member of the ruling pro-junta Palang Pracharath Party, Prayut declared that he will join the recently-created Ruam Thai Sang Chart before the next election. He is likely to be designated as one of the party’s candidates for PM (up to three candidates per party). It remains unclear whether the upper house, appointed by the military, will continue to back the general and PM Prayut, who led the 2014 coup d’état. The vote of the Senate is crucial to the appointment of the new PM. Even if re-elected, the constitution would force Prayut to step down mid-term as he would have reached the limit of his term of office.
While it voted in favour of the first resolutions condemning Russia, Thailand abstained from voting during the UN General Assemblies of October and November 2022. In September 2022, the two countries had agreed to expand bilateral trade to USD$10 billion in 2023, up from USD$2.7 billion in 2021.