Thailand's Economy Eyes Recovery as Inflation Eases and Tourism Surges

Thailand's economy is showing signs of recovery, driven by tourism, agricultural exports, and fiscal measures like the Digital Wallet program. While inflation has eased and manufacturing production is stabilizing, concerns over household debt and the depreciation of the Thai baht remain. The government’s efforts to boost GDP through fiscal spending are critical, but long-term challenges still lie ahead.

Thailand’s economy is gradually picking up pace in 2024, buoyed by rising manufacturing production, growing exports, and a resurgence in tourism. However, challenges remain as private consumption moderates and household debt continues to strain the financial system. These developments come at a time when global economic uncertainty still looms, but Thailand's fiscal and monetary policies are offering some relief. This article explores Thailand’s latest economic indicators based on the Thailand Monthly Economic Monitor (30 July 2024), prepared by the World Bank.

A Gradual Economic Recovery

The Thai economy is showing signs of recovery after struggling through the pandemic and global economic shocks. In May 2024, manufacturing production saw a year-on-year contraction of only 1.5 percent, a notable improvement from an average 4 percent drop over the previous six quarters. Exports, too, experienced an upturn, driven largely by agricultural goods. Agricultural exports, particularly fruits, rubber, and animal feed, surged by 36.5 percent year-on-year. Despite a modest 2.4 percent increase in manufacturing exports, the overall export growth still lagged behind most major Asian economies, which benefited from global demand for high-value electronics components like semiconductors.

Tourism, a vital sector for Thailand, continues to recover, with 2.63 million arrivals recorded in May 2024. This figure is edging closer to pre-pandemic levels, marking a 30.8 percent increase year-on-year. Chinese tourists, who were key drivers of Thailand's tourism industry before the pandemic, accounted for 70 percent of their pre-pandemic numbers.

Despite these positive signs, private consumption moderated, and consumer confidence saw its fourth consecutive month of decline in June. Growth is expected to accelerate slightly, with projections rising from 1.9 percent in 2023 to 2.4 percent in 2024.

Inflation Dips, But Household Debt Remains a Concern

Inflation has eased in Thailand, providing some respite to consumers and businesses alike. Headline inflation dropped to 0.6 percent in June 2024, largely due to falling fresh food and energy prices. Favorable weather conditions boosted the supply of agricultural products, while global oil prices remained moderate, helping lower energy costs. This positions Thailand as having one of the lowest inflation rates among emerging markets, second only to China.

However, underlying risks remain. Core inflation, which excludes volatile food and energy prices, stayed weak at just 0.4 percent. This sluggish rate reflects a delay in closing the output gap, which has persisted since the pandemic.

Household debt continues to be a significant source of vulnerability for the Thai economy. Although household debt has decreased from its peak of 95.8 percent of GDP in recent years to 90.8 percent in the first quarter of 2024, it remains a critical issue, especially given the high proportion of uncollateralized consumer loans. The banking sector, however, has remained stable, with non-performing loans (NPLs) sitting at 2.7 percent, below pandemic levels. Yet, small and medium-sized enterprises (SMEs) continue to grapple with high levels of NPLs, which have constrained commercial bank lending.

To address this, the government has launched a THB 100 billion (USD 2.8 billion) soft loan program aimed at providing relief to SMEs. This initiative offers liquidity to commercial banks at minimal interest rates, which can then be passed on to small businesses at reduced rates, helping ease the financial burden on a critical sector of the economy.

Fiscal Spending and Digital Wallet Program

To stimulate economic activity, the Thai government has fast-tracked fiscal spending after several months of delay. Both current and capital expenditures saw acceleration in May 2024, with the central government’s fiscal deficit expanding to 9 percent of GDP. The government’s increased spending is expected to continue boosting the economy throughout the rest of the year.

A key component of the government’s strategy is the recently approved Digital Wallet program, which is set to roll out between the fourth quarter of 2024 and the first quarter of 2025. The one-time THB 10,000 (USD 286) digital transfer will be distributed to approximately 40 million participants, primarily to stimulate local economies by restricting usage to the recipient’s registered district. The program is projected to increase GDP by 0.5-1.0 percentage points in the short term, though public debt is expected to rise by 1.3 percentage points of GDP by FY 2025 as a result.

Currency Woes Amid Global Uncertainty

Despite the Thai economy’s slow recovery, the Thai baht has depreciated against the U.S. dollar, along with other major Asian currencies such as the Korean won and the Philippine peso. This depreciation is largely driven by the delayed easing of U.S. Federal Reserve policies and continued concerns over the Thai economy.

Though Thailand recorded a current account surplus, supported by increasing tourism receipts and a growing goods trade surplus, the baht’s value declined. This trend was compounded by the sixth consecutive quarter of portfolio investment outflows, as investors withdrew funds from both stock and sovereign bond markets.

The depreciation of the baht poses both challenges and opportunities for Thailand. While it may make Thai exports more competitive on the global market, it also raises concerns over capital outflows and the broader stability of the financial system, particularly as household and SME debt remain high.

Thailand’s economy is on a path to recovery, supported by improving tourism and agricultural exports. However, inflationary pressures, household debt, and SME non-performing loans continue to weigh on the country's financial health. The government's fiscal measures, including the Digital Wallet program, are expected to provide short-term economic boosts, but long-term structural reforms may be necessary to ensure sustainable growth. With cautious optimism, Thailand seems poised for modest economic improvement in the coming months, though global and domestic challenges persist.