Current liquidity problem in the industrial and manufacturing sector is coming amid buoyant hopes for foreign tourism with Thailand seeking to generate ฿1.3 trillion from incoming tourists this year compared to ฿580 billion in 2022 as Chinese tourists flock to book holidays in the kingdom.
Despite rising foreign tourist arrivals, Thailand’s economy contracted on a seasonal basis in the last quarter of 2022 raising fears that amid a continued slump in exports, the country could find itself in a technical recession if it fails to show GDP growth in the opening quarter of 2023. The deterioration in the economy can also be seen in a reported credit crunch with the former deputy minister of labour, Dr Narumon Pinyosinwat, warning that there has been a spike in bank loan applications across all sectors in the economy with large, medium and small businesses seeking new credit facilities in an environment where lending criteria have been tightened to rein private sector debt.
More Thai firms including large, medium and small enterprises have sought credit facilities from bankers in the last quarter of 2022 and the opening quarter of 2023 as the economy appears to be experiencing a new liquidity crisis.
On Friday, economist and former deputy minister of labour, Dr Narumon Pinyosinwat, in a statement, pointed to figures from the Bank of Thailand and said that the spike in demand for short-term finance is coming from all areas of the economy.
Economic review by planners on Friday scaled back confirmed GDP growth rate for 2022 to only 2.6%
The increased demand for loan facilities comes as the Bank of Thailand has imposed more stringent credit controls on retail banks as it seeks to rein in private sector debt.
The bank has also tightened consumer credit facilities such as credit card extensions and personal loans to dial back the country’s chronic problem of elevated household debt.
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It comes as Thai economic planners at the National Economic and Social Development Council (NESDC) on Friday, following a meeting to review the country’s economic prospects, downgraded the growth rate for 2022 from 3.2% to only 2.6% after data showed that the economy even regressed marginally in GDP terms in the last three months of 2022 despite an uplift in foreign tourist arrivals and earnings.
Exports plummeted by 7.5% late last year
Although the last quarter of 2022 saw a 1.4% rise compared to 2021, the seasonally adjusted rate was negative 0.5% meaning that the economy or overall GDP output went backwards over the three-month period.
The cause of the contraction in GDP activity and prospects ahead is quite clear, it is falling export demand which has continued into 2023.
Exports plummeted 7.5% in the last quarter of 2022 and were even down by 0.7% compared to the same quarter in 2021 when Thailand, Southeast Asia’s second-largest economy but with lagging growth for five years, compared to its peers, only saw its economy grow by 1.5% following a massive contraction of 6.1% in 2020.
Last quarter of 2022 saw a GDP contraction on a seasonally adjusted basis raising fears of a possible technical recession if this quarter disappoints
The contraction of GDP growth in the last quarter of 2022 means that Thailand could be facing a technical economic recession if the economy fails to move upward in the opening three months of 2023 when the data is counted to March 31st next.
On Friday, Dr Narumon took note of the reduced GDP growth for 2022 and that the range of growth now projected for the kingdom in 2023 varied from as low as 2.7% to a high of 3.7% as the National Economic and Social Development Council (NESDC) shaved a full percentage point off the kingdom’s prospects.
She feared that a lack of access to credit for Thai firms or, in effect, a credit crunch, posed a major obstacle to the government’s economic plans for the year ahead.
She indicated that the situation will detrimentally impact small business concerns in Thailand.
Former deputy labour minister calls for help for business concerns trying to find the financial lifeblood to survive the country’s lack of cash flow
The former cabinet minister, removed by General Prayut in September 2021 after a parliamentary heave against him, called on the government to assist such operators who are experiencing difficulties accessing funding.
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‘This year we all hope that SMEs will benefit from the gradually recovering economy. The lack of access to credit for SMEs will be a major obstacle that causes SMEs to lack working capital for business rehabilitation. I would like to give my regards to the government and the Thai Credit Guarantee Credit Corporation (TCG) who can be the protagonists in this situation. With a special project to help guarantee credit for SMEs that have a chance to recover but are unable to access credit by themselves due to various factors mentioned above, for the little person to stand up and finally be able to walk on firmly!’ Dr Narumon stated.
Economic problems reversed with strong foreign tourism income and boosted domestic spending but lack of funding within businesses like manufacturing
The latest data was analysed by economists and those charged with oversight of the economy on Friday. It showed consumer spending was up in the last quarter while government spending was down.
It appears to be the reverse situation to that seen in 2021 and early 2022 when exports were up but foreign tourism income and domestic spending were stymied.
Tourism continues to grow with the kingdom receiving 11.15 million visitors in 2022 and with projections suggesting that, buoyed by Chinese demand with the communist country placing restrictions on its populace, Thailand could see over 28 million foreign tourists in 2023.
Thailand and Bangkok is, by far, the most popular destination for Chinese travellers with many other global tourist hotspots off limits to its nationals through government travel restrictions.
‘Exports are the major factor, even if other factors, particularly tourism, are doing well,’ the National Economic and Social Development Council (NESDC) Secretary-General Danucha Pichayanan explained on Friday.
Reduced export volume and value with recent weakening of the baht. Thailand targets ฿1.3 trillion in foreign tourism earnings, over twice that of 2022
The economic agency chief explained that in addition to reduced export volume and a decrease in the effective value of the Thai baht may impact the overall income from exports in 2023 resulting in a contraction of 0.6% compared to a gain of 5% in 2022, a figure that, at one point last year, promised it may rise to even twice that level.
Exports and manufacturing account for 60% of Thailand’s economy while foreign tourism contributes directly to 12% of GDP and creates 20% of jobs while also boosting domestic spending which is the third key element in the economy much of which is spent within Thailand’s grey or black economy which is still over 50% of the country’s real GDP.
Mr Danucha acknowledged that Thailand is very much dependent on income generated by foreign tourism in 2023 which should contribute ฿1.3 trillion in direct earnings compared to ฿580 billion in 2022.
‘The world’s economy has slowed down quicker than anticipated. The main engine of the national economy will be the tourism sector,’ he explained.
Echoing other industry leaders, he urged the government to closely monitor external developments as the world has entered a challenging period with a slowdown in trade and economic activity.
US dollar fluctuations as the Fed continues its dogged fight against inflation which came in at 6.4% in January, US borrowing rates to rise to 5.5%
He also expressed concern about rising interest rates with the Bank of Thailand expected to continue its gradual rise of the benchmark borrowing rate throughout 2023 while the Federal Reserve in the United States is also expected to continue to raise its rates given the resilience of the American economy with stronger than expected retail sales in January and a robust jobs market.
US interest rates are expected to continue to rise in increments of 25 basis points predicted at least twice over the coming months, bringing the rate to as high as 5.5%.
US Inflation in January was marginally lower than in December at 6.4% having peaked at 9.1% in June last year but monthly inflation rose by 0.5% compared to 0.1% in December.
This means that the Federal Reserve will maintain a hawkish posture for some time to come which negatively impacts the baht’s value while market speculation based on an easing of the Fed’s policy leads to the strengthening of the baht which is rated highly by speculators due to its intrinsic value based on Thailand’s unusually strong financial fundamentals.
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About the Author
Joseph O’ Connor
Joseph Anthony is an expat from Ireland who has lived in Thailand for the last decade. He has worked extensively in the media including editorial positions in Ireland and Thailand. He is focused on economic and business stories in Thailand as well as the expat lifestyle.