Thailand Focuses on Tourism for Economic Recovery

The Economic Intelligence Center (EIC), a research organization affiliated with Siam Commercial Bank, has predicted that Thailand’s recovery will be driven by the tourism sector, replacing the slowing export sector.

According to the EIC, foreign tourist arrivals will reach 7.4 million in 2022, up from 5.7 million, but this number is nowhere near the pre-pandemic level of almost 40 million in 2019.

EIC chief economist Somprawin Manprasert predicts that foreign tourist arrivals will double annually in the next few years.

Next year, he said, Thailand will see a clearer picture of the global economy, including whether a recession is occurring in key economies such as the US, Europe, and China.

Factors such as the rising inflation rate, the Russia-Ukraine war, and China’s zero-covid policy are expected to slow the global economy in 2023, which will hurt Thai exports.

According to Mr. Somprawin, research houses worldwide predict a global economic growth rate of 3.2% this year, though some have recently lowered their projections.

Exports From Thailand Declining

EIC has not released a forecast for 2023, but what is expected is a decline in Thai export growth from the 5.8% prediction that was downgraded from an earlier estimate of 6.1% in 2022.

As a result of Thailand’s reopening, the EIC raised its GDP growth forecast for 2022 to 2.9% from 2.7%.

According to the EIC, the country’s headline inflation rate will surpass the central bank’s target of 1-3% at the end of this year’s third quarter before gradually declining. Inflation is expected to be 5.9% for the full year, according to the research house.

According to the EIC, the Monetary Policy Committee (MPC) at the Bank of Thailand will raise its policy rate by 25 basis points at its next meeting in August.

Mr. Somprawin predicted the MPC would monitor the economy after a rate hike in August.

“We believe the MPC will not raise rates continuously since it takes time to analyze the effects of the initial increase.”

The EIC expects the US Federal Reserve will raise its policy rate by 50 basis points three times this year. As a result, the Fed Funds rate will reach 3% by the year’s end.

Economy Slow to Recover in Thailand

The EIC predicts the baht will weaken to 34.5-35.5 baht against the greenback due to aggressive Fed rate hikes and a strengthening dollar. With an improvement in the current account balance and an increase in foreign visitors, the baht is expected to bounce back a bit to 33.5-34.5 baht by the end of the year.

According to IMF staff who recently visited Thailand to assess economic and financial developments, Thailand’s economy continues to recover from the pandemic thanks to a comprehensive economic policy package and an accelerated vaccination program.

According to an IMF statement on June 13, real GDP grew by 1.5% in 2021 and is projected to grow by about 3% in 2022. Since the economy is still operating below its potential, the recovery is uneven across sectors.

In 2022, headline inflation is expected to average 6.1%, driven by high energy prices.