Thailand’s growth weaker than expected in 2019

Published on 15 Nov 2019.

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Thailand’s economic growth is projected to slow to 2.6% in 2019 (2018: 4.1%), significantly underperforming RAM Ratings’ initial estimate of 3.5%. “This downward revision mainly reflects global headwinds, which had intensified beyond our previous assessment, and the protracted formation of the Government following recent elections,” explains Esther Lai, RAM’s head of Sovereign Ratings. Nevertheless, Thailand’s commendable external position will cushion the impact of the global slowdown while its fiscal space remains ample to provide support to vulnerable sectors of the economy. 

Exports, which have been on a decelerating trend since 2017, had contracted by a significant 4.1% in 8M 2019, forming the basis of our growth revision. This trend is largely due to the disruptive effects of ongoing global trade disputes, an appreciating baht and a severe drought which had affected agriculture production. Despite recent efforts to spur trade diversion activity, a robust recovery in Thailand’s exports for the remainder of the year is unlikely, given the uncertain external demand outlook. 

Similarly, international tourist arrivals registered lacklustre growth of 3.5% in 9M 2019 (2018: 7.3%) as the stronger currency and fiercely contested elections earlier in the year had deterred travellers. While tourism activity is gradually recovering in line with the easing of election-related political tensions and continued visa fee waivers for selected countries, dimmer global growth prospects pose a risk to this sector.

Household spending is expected to be adversely affected under the said conditions, with employment falling 1.6% in October 2019 and farm income registering a mild 1.0% growth in 10M 2019. This is evident in the persistent decline in the retail sales of durable goods since May 2019. A sizeable fiscal stimulus (1.9% of GDP) announced in August 2019, which would be gradually disbursed over 2 years, is targeted at marginalised households and would mitigate the dampening effects of the current downturn.

Government investments are not projected to be a significant contributor to growth in 2019, in contrast to our initial projections. Reported delays of state-owned enterprise investment projects by the Bank of Thailand are indicative of lingering execution issues and could also be linked to the long drawn-out establishment of the Government following elections. These concerns are further evinced by the country’s recent fiscal performance – with actual capital expenditure coming in at 58.2% of the Government’s total allocation for fiscal year ending September 2019 – and the postponement of the tabling of Budget 2020.  

Monetary policy stance has eased following the recent reduction of the key policy rate to 1.25% from 1.50%. While the policy direction is appropriate in view of growth headwinds, its effectiveness may be limited as demand for loans is anticipated to wane and given that loans to SMEs present a risk to the financial system. That said, Thai banks are adequately capitalised and current macroprudential guidelines mitigate any immediate growth risk stemming from the financial system. 

Thailand’s respective gBBB1(pi)/Stable and seaAA1(pi)/Stable ratings on the global and ASEAN scales are unchanged as its external buffers and fiscal space remain sufficient to limit the macroeconomic impact of current global uncertainties. Notably, foreign reserves are sizeable, adequate to finance 8.2 months of current account purchases as at 1H 2019, and public debt is manageable at 41.1% of GDP as at end-3Q 2019. These key matrices are commendable relative to that of regional peers. 


Analytical contact
Jason Fong
(603) 3385 2616

Media contact
Padthma Subbiah
(603) 3385 2577


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