Thailand: EIC downgrades growth forecast for 2023

The Economic Intelligence Center (EIC), a research unit under Siam Commercial Bank, has slashed its 2023 GDP growth projection for Thailand due to the global economic slowdown and the increased likelihood of a recession in developed economies.

The research house has downgraded the country’s GDP growth rate for next year to 3.4%, from the previous forecast of 3.7%.

The global economy has been slowing while some major economies are expected to enter recession late this year, led by the UK and the eurozone, followed by the US in the first half of 2023, said the EIC’s chief economist Somprawin Manprasert.

The EIC also downgraded its 2023 global economic growth forecast from 2.7% to 1.8%.

For the base case, Mr Somprawin said the global economy has yet to enter a recession as many countries are still recording growth. However, unexpected circumstances such as the escalation of international conflicts or surging inflation, which prompt tighter monetary policy responses, may push the global economy into recession.

In a related development, Thitima Chucherd, the EIC’s head of economic and financial market research, said the Thai economy has been showing clearer signs of a rebound, fuelled by tourism and domestic consumption. As a result, the EIC has upgraded its 2022 Thai economic growth forecast to 3.2%, from an earlier projection of 3%. The EIC said it expected foreign tourist arrivals to hit 28.3 million in 2023, up from 10.3 million this year.

According to Ms Thitima, the momentum of export and investment growth is likely to significantly subside next year, while living and business costs remain high. Some households may see their expenses exceeding income, while firms which are recovering are facing higher risks from a global economic slowdown and advanced economic recession.

“If the US Federal Reserve raises its policy rate to 5.75-6%, it would trigger a global recession and the Thai economy would possibly enter into a recession next year,” she said.

Given several uncertainties from both domestic and external conditions, the country’s growth outlook would be overshadowed in 2023. “In our base case, the recession is somewhat unlikely, and the Thai economy should return to its growth potential at the end of 2024,” she said.

In addition, the research centre said it expects the Bank of Thailand to increase the policy rate by 25 basis points to 1.25% at its meeting tomorrow. The central bank is expected to further raise the policy rate to 2% in the first half of next year under a gradual policy normalisation.

Under this scenario, the EIC believes the Thai currency will strengthen to 36-37 baht against the US dollar by the end of 2022 and continue to appreciate to 34.5-35.5 baht against the greenback by the end of 2023, Ms Thitima said.