Recession fears rise as growth projections are cut and exports continue to decline in 2023 – Thai Examiner


Thailand’s current account in the last three years tells the story of an economy that has seen a structural change since the closure of the kingdom in April 2020. This week the Tourism Authority of Thailand (TAT) predicted that this summer Thailand would enjoy 57,000 more flight slots to boost the number of incoming tourists as the kingdom seeks to attract 27 million visitors in 2023, an economic imperative given the continued fall in exports since the end of 2022 and into the current year.

Growth prospects for the Thai economy have been downgraded as the country’s leading export body, this week, warned of a 10% decline in the opening quarter of the year with weaker demand from Western markets suffering from tightened liquidity due to concern within the banking system and rising interest rates. The promised upturn in demand from China has also failed to materialise with exports to that market down 7.8% in February, the ninth month in a row when output to the communist country has fallen. The situation leaves the Thailand facing the rising prospect of a technical recession.

Chaichan Chareonsuk the Chairman of the Thai National Shippers’ Council has confirmed that exports will contract by approximately 10% in the opening 3 months of 2023 and a further 5% in the second quarter as the upturn expected in the Chinese market has failed to materialise. In a separate development, Fitch Ratings has downgraded projected Thai GDP growth for 2023 to 3% and this will be dependent on the country attracting 27 million foreign tourists for the year.

Thailand faces another quarter of GDP contraction despite a rebound in foreign tourism which would technically leave the economy in a recession after a seasonally adjusted 1.5% GDP contraction in the last quarter of 2022.

On Tuesday, the Thai National Shippers’ Council, through the organisation’s chairman Mr Chaichan Chareonsuk, predicted that the kingdom’s exports would contract by 10% in the first three months of this year.

Top economic planner insisted in February that the chances of a recession were slim but exports have continued to decline into the first quarter of 2023

Mr Chareonsuk predicted that exports in March would also see a contraction following a 4.7% dive in February after a 4.5% fall in January.

In February, the Secretary-general of the National Economic and Social Development Council (NESDC), the country’s main economic advisory agency, Mr Danucha Pichayanan, suggested that the possibility of this happening was only a small one as economic indicators for 2023 suggested economic expansion.

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He did, however, acknowledge that the slowdown in the world economy had taken Thai economic planners by surprise.

‘The global economy has decelerated faster than we expected,’ he said. ‘However, there is only a slim chance the economy will contract in the first quarter of this year as economic indicators suggest continued expansion.’ 

No upturn seen from China say Thai exporters with nine months in a row of declining output

On Tuesday, Mr Chaichan warned that the expected economic upturn in China has, so far, failed to materialise for Thai exporters, particularly concerning the industrial sector of the economy.

He pointed to a 7.86% contraction in exports to China in February which was the ninth consecutive month of decline.

Products severely hit by the situation include plastic pellets and rubber exports.

At the same time, the country was facing a slowdown in economic growth in key markets such as the United States, Europe and the United Kingdom with chances that the recent banking crisis in Western countries may have already led to cash flow constraints as financial liquidity in the system was challenged.

Era of polarisation as relations between the United States and China worsen with trade and tech barriers

The export industry boss also, like other key Thai business leaders, pointed to the growing polarisation of the world economy between America and China with geopolitical tension feeding into a plethora of economic headaches including an ongoing trade war, technical embargoes and rising trade barriers facing Thai exports to foreign markets.

The Shipper’s Council for instance has called for increased urgency to advance plans put forward by the National Research Council of Thailand (NRCT) to assist Thai firms seeking certification to comply with new carbon neutral and environmental requirements being imposed by Western governments on imports, particularly with regard to the European Union.

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Recently, a legal expert, Philippe De Baer of the firm Van Bael & Bellis accused the European Union of engaging in ‘regulatory imperialism’ with its ‘ambitious’ environmental policies on trade.

Exports expected to recover later in 2023 with a target of up to 1% growth for the year still in view

At the same time, Mr Chaichan said he still believes that Thai exports will recover in the third and fourth quarters of 2023 and his organisation is still projecting up to 1% export growth for the year although, in the short term, he predicts a 5% decline in exports over the coming three months until the end of June.

He qualified this by warning of further potential downside risks including the threat posed by rising oil prices with the Organisation of the Petroleum Exporting Countries (OPEC) and other key oil producers this week signalling a cutback in production of 1.16 million barrels a day from May until the end of 2023.

Analysts see the move by the producers as a precautionary measure, however, with world economic growth projected to fall to only 1.7% in a January forecast issued by the World Bank which noted that there were signs of a significant downturn.

Fitch downgrades Thailand’s GDP growth forecast for 2023 to 3% due to a darker world economic outlook 

On Tuesday, Fitch revised its GDP outlook for Thailand, projecting only a 3% growth rate for 2023 dependent on improved consumer spending and the country attracting 27 million visitors by the end of the year.

Growth in 2022 was only 2.6% following a 1.5% advance in 2021.

It arrived at its more cautious analysis by identifying a tightening of liquidity and uncertainty in banking markets both in the United States and Europe which will impact the kingdom’s economy and feed into a steeper decline in world trade and economic output.

The report from a research unit within the Fitch Group or Fitch Ratings, one of the big three world ratings agencies, suggested a pickup in the latter half of the year in Thailand but this was also highly qualified.

‘With rising risks of a deeper slowdown in the global economy due to increasing uncertainty and banking stresses in the US and Europe, risks to the Bank of Thailand’s economic growth projections are likely increasingly weighted to the downside,’ the report outlined. ‘As such, we expect the central bank to soon adopt a neutral stance to avoid derailing Thailand’s economic recovery, once growth figures come in below their expectations.’ 

Interest rates to rise one more time in May

Fitch expects the Bank of Thailand to raise interest rates one more time in May by 25 basis points bringing the benchmark rate to 2%, a full 3% behind current US interest rates and below many of its peers.

The company also predicted a Thai headline inflation rate of 2.7% by the end of 2023 which would be within the central bank’s target range of 1% to 3%.

The disappointing decline in Thai exports since the end of last year has made the country’s fading economic prospects in 2023 very much dependent on foreign tourism with the latest tourism figures showing 6.2 million visitors in 2023 up to March 29th.

However, the data shows that 890,473 of these visitors were from Malaysia which was the leading country of origin followed by Russia which sent 556,408 visitors.

The Tourism Authority of Thailand (TAT) appears confident about the kingdom’s prospects and points to an extra 53,000 flight slots planned for the summer compared to the previous winter season as a sign that the country’s vital foreign tourism trade is genuinely recovering.

Thailand had 24 current accounts deficits since April 2020 with only one from November 2014 to then, a marked change in fortune since the shutdown

Figures published by the Bank of Thailand show that Thailand had a current account surplus of $1.3 billion in February despite a $1.1 billion trade deficit. 

The difference highlights the beneficial impact on the kingdom’s economy of foreign tourism income, remittances and foreign direct investment.

However, for January 2023, the kingdom posted a $2 billion deficit. 

Since the full closure of Thailand in April 2020 due to the pandemic, there is a stark difference in the country’s current account performance.

Thailand has posted 24 months of current account deficits out of a total of 36 months since that shutdown of the country and much of its economic activity at that time which saw the economy contract by 6.1% in 2020. The highest current account deficit was $4.1 billion in August 2022.

Before this, in a period from November 2014 to April 2020, or five years and six months, it had only posted one current account deficit of $380 million in June 2019.

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Further reading:

Economy faces export clogs with rules in China and ‘green imperialism’ from European Union

Vital European Union free trade deal with Thailand with stiff demands from Brussels to take time

Thailand in direct trade talks with 12 Indian states which could also boost the tourism industry here in 2021

World’s biggest free trade deal just signed will be a huge boost for the Thai economy and exports

US move against Thailand on trade is a warning as Thai exports to America boomed in September by over 19%

Thailand’s trade agenda may be complicated and thwarted by raised tensions in the Indo Pacific region

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