The Thai economy has come a long way since the pandemic hit in 2020, but it still faces some headwinds and risks in the near future.
According to the latest data from the Bank of Thailand, the gross domestic product (GDP) grew by 1.5% in 2021 and is projected to grow by 2.6% in 2022, after contracting by 6.1% in 2020. The recovery was driven by the gradual reopening of the tourism sector, which accounts for about 20% of the economy, as well as the improvement in private consumption and investment.
The number of tourists visiting Thailand dropped from 40 million in 2019 to zero during April-September 2020 due to travel restrictions and lockdowns. However, thanks to the easing of quarantine measures and the introduction of special tourist visas, the number of tourists rebounded to 11 million in 2022 and is expected to reach 28 million in 2023.
Non-farm income, which reflects the income of households from tourism and other services, also bounced back from a 18% decline in 2020 to a 16% increase in 2022, reaching 90% of the pre-COVID level. Private investment, which was hit hard by the pandemic and fell by 8% in 2020, recovered to a 5% growth in 2022, surpassing the pre-COVID level.
Inflation, which turned negative in 2020 at -0.9%, surged to 7.9% in August 2022 due to supply shocks and rising energy prices. However, it has since moderated to 3.8% in February 2023 as supply conditions improved and demand pressures eased. The Bank of Thailand expects inflation to average 6.1% in 2022 and 2.9% in 2023, within its target range of 1-4%.
The financial system remains sound amid volatile global financial markets, thanks to the resilience of the banking system and the strong external sector. The banking system has maintained high capital adequacy ratios, loan loss provisions, liquidity coverage ratios, and credit growth, while keeping non-performing loans under control. The external sector has accumulated a large stock of foreign reserves, equivalent to three times the short-term external debt, which provides a buffer against external shocks.
However, there are some pockets of vulnerabilities that need to be monitored closely. One is the high level of household debt, which peaked at 90% of GDP in 2021 and declined slightly to 87% in the third quarter of 2022. High household debt could pose a risk to financial stability and consumer spending if interest rates rise or income shocks occur.
Another is the global economic slowdown, which could lead to a slowdown in exports, which account for about half of the GDP. The value of exports declined by 6.3% quarter-on-quarter in the fourth quarter of 2022, reflecting the weakening demand from major trading partners such as China, Japan, and the US. The Bank of Thailand expects exports to contract by 0.7% in 2023, but to pick up in the second half of the year as global growth recovers.
The Bank of Thailand also warns of heightened volatilities in global financial markets due to uncertainties over the global economic and inflation outlook, the monetary policy stance of major central banks, and the potential spillovers from the US-EU banking crises. These factors could cause more volatile movements in the exchange rate and capital flows, affecting domestic financial conditions and economic activity.
The Bank of Thailand says it will continue to monitor the situation closely and use its policy tools as appropriate to support the economic recovery while maintaining price stability and financial stability, including grow digital payment and go green.
Reference and Photo Source: Bank of Thailand
