A need to raise interest rates in the United States, coming at a time when Thailand’s economy is short on liquidity with a record level of household debt, will be a key challenge in 2022 amid hopes that the kingdom may return to more significant economic growth this year. The economy received some good news on Friday when the Secretary-general of the Board of Investment revealed a 59% rise in inward foreign direct investment pledges for 2021.

A sharp rise in inflation for January was expected and is being seen as part of a transitory period with prices in the kingdom stabilising in the second half of the year. They are expected to moderate to an annual projected inflation rate for 2022 of between 1.5% and 2.5%. Planners are hoping the kingdom’s economy can grow by up to 4% this year but are cautious as experts warn of the dangers posed by a rising interest rate environment and deepening US-Chinese tensions. At the same time, there are grounds for optimism with rising inward investment pledges announced by the Board of Investment on Friday and a strong banking system.

The Director-general of the Trade Policy and Strategy Office at the Ministry of Commerce, Ronnarong Phoolpipat, said on Friday that there was no need to take action on inflation which is expected to moderate later in the year. The spike in January, which saw prices rise by 3.23%, was driven by energy and food prices. This has already led to a rise in airfares, even as the airline industry begins to recover from the pandemic slump.

A well known economic think tank in the Kingdom, the TISCO Centre for Economic Analysis and Strategy, has singled out rising interest rates as a key challenge for Thailand as the country moves forward with its attempts to rejuvenate its battered economy with hopes of a return to some critical level of visitors within the foreign tourism industry this year and export growth of at least 5%.

The kingdom is targeting between 3.4% and 4.5% growth in 2022. Last year, Thailand’s GDP grew by only 1% following a disastrous 6.1% contraction in 2020.

On Friday, Ronnarong Phoolpipat, the Director-general of the Trade Policy and Strategy Office at the Ministry of Commerce said that the government was not concerned about the latest inflation rate for January saying it thought no action was necessary at this time.

Surprisingly strong banking sector, no spike in bad debts caused by economic fallout from the pandemic

However, rising interest rates in the United States and demands for a rate hike in Thailand may severely impact the economy’s prospects later in 2022 because of a record level of household debt despite a surprisingly positive report from the Bank of Thailand at the end of January showing no notable increase in bad debt and consistent profits within the commercial banking sector in the last quarter of 2021.

This has been credited to ongoing debt management efforts by the bank in conjunction with commercial operators to restructure and liaise with particularly vulnerable borrowers during the emergency.

Challenges are rising interest rates with a lack of liquidity in the economy and US Chinese tensions

However, many senior commercial bank executives are already expressing apprehension about what looks like a rising interest rate environment moving into place this year in Thailand in an economy where there is still a chronic shortage of liquidity.

The other key negative factor is the ongoing trade war and geopolitical tensions between China and the United States, the kingdom’s two largest export markets and key development partners.

It is now generally accepted that a process of deglobalisation has begun or at least a ‘decoupling’ of the relationship between China and America which, so far, has been disastrous for Thailand as global supply chains are being rearranged.

Positive news on inward investment with a 59% rise in 2021 figures over the year before just announced

On Friday, however, a meeting of Thailand’s Board of Investment, chaired by Prime Minister Prayut Chan ocha, had a more optimistic outlook after Secretary-general Duangjai Asawachintachit revealed that total investment pledges for 2021 came to ฿643 billion of which ฿221 billion was earmarked for the Eastern Economic Corridor (EEC) project in the kingdom’s eastern provinces.

GDP fall for Thailand’s flagship Eastern Economic Corridor project since the COVID-19 crisis began

This was a 59% rise from 2020.

‘Investment applications for BCG activities are continuously increasing as investors take advantage of the promotion measures we issued to help Thailand’s economy. Companies operating here are preparing for changes to consumer demand and supply chains after Covid-19 is controlled,’ Ms Duangjai revealed. ‘As for FDI (Foreign Direct Investment), we are seeing constant growth in target sectors such as smart electronics, speciality chemicals, bioplastics and the medical cluster.’

Japan is the largest foreign investor in the kingdom

The biggest inward investor in the kingdom, according to the proposals submitted and approved by the board, was Japan whose firms pledged ฿80.7 billion across 178 projects followed by China with ฿38.6 billion across 112.

Singapore was third with ฿29.7 billion in funding to be invested across 96 approved proposals.

There are tentative signs that the economy in January began to stabilise with more positive indications that the COVID-19 emergency may be receding.

The news comes despite a confirmed rate of 3.23% for inflation which represented a nine-month high and was ahead of analysts expectations as polled by Reuters.

January inflation spike driven by food and energy price shocks, rate is expected to recede going forward

However, the rate of inflation is being seen as a temporary spike which is expected to stabilise later in the year.

When energy costs and the price of food and drink were excluded from the index, the underlying rate was 0.5%, only marginally ahead of market expectations at 0.4%.

Thailand’s inflation figure compares well to developed economies where inflation rates varied from 5.4% for December in the United Kingdom and projected level of 5% of the year ahead to a figure of 4.9% in Germany.

The figure in the UK was the highest in 30 years but was surpassed by the situation in the United States where the annual inflation rate in the last month of 2021 was 7%, the highest since 1982.

The US Federal Reserve is expected to raise interest rates in March and consistently throughout this year to head off the trend.

Thai public still anxious about COVID-19 threat

Nevertheless, there is still anxiety about the path of the COVID-19 virus with a recent survey showing that 58% of the Thai public was either moderately worried or quite agitated about the continued possibility that the virus situation may cause another economic disruption.

A large proportion of the Thai population finds itself in an extremely fragile economic situation as the government is expected to rein in economic stimulus measures which are currently projected to have cost it ฿396 billion from a special ฿500 billion loan facility.

However, inflation is expected to fall off significantly in the second half of the year with reduced prices for pork and chicken already being reported in the market after the Chinese New Year celebrations.

Business select committee predicts annual inflation rate in Thailand for 2022 at between 1.5% and 2.5%

The Joint Standing Committee on Commerce, Industry and Banking, this week, projected an inflation rate in 2022 of between 1.5% and 2.5%, well below the international average with a 3% figure for the opening six months of the year.

The results of a survey by the Bank of Thailand for January shows that 36% of respondents reported being able to maintain their income for the month which began with a scare driven by fears of the Omicron virus strain and ended, quite unexpectedly, with the reopening of the country to foreign tourism on February 1st.

27% of people surveyed reported a drop in their income of approximately 10%.

A survey of 246 business operators across the Thai economy including small and medium concerns, shows that 59% were committed to holding their prices in check, at least for the opening 3 months of the year.

Pressure on hospitality concerns to raise prices

These were mostly firms in the service sector while firms in the hospitality trade and those linked to travel and higher energy prices were more likely to be forced into raising charges.

Only 9% planned to hike prices by over 20% in the opening quarter while 29% were keeping price increases to less than 10%.

For most ordinary Thais, this saw a price hike on food portions at the kingdom’s popular food stalls rise between ฿5 to ฿10 which is significant.

Airfares also going up but industry leaders are cautious not to thwart the latest recovery as loads rise

On the other end of the scale, Mr Tassapon Bijleveld, the Executive Chairman of Thai Air Asia has reported that average loads for the popular carrier have returned to between 72 and 73% for February with prospects of 80% now in sight.

However, he warned that there may have to be a hike in flight fares with oil on the global market hitting $100 a barrel which Mr Tassapon points out is a 77.8% increase from this time last year.

He emphasised that his firm would be extremely cautious about a price increase as the market was still not strong and would remain very sensitive for some time.

Ms Nuntaporn Komonsittivate the Head of Commercial Operations at Thai Lion Air, said that her airline would be imposing higher prices but would endeavour to keep all flights at a price level of ฿1,200 for a one-way ticket. 

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Further reading:

Thailand’s economy awaits the fallout from the Omicron surge as projections for 2022 take a dive

Inflationary fears for Thailand more muted than in the United States but planners should prepare

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Industry leaders and central bank all warn that foreign tourism must return to avoid a collapse

Refloat of foreign tourism in the 2nd half of 2021 with vaccines pushed by minister and industry for the sector

Fact – only 6,556 visitors arrived in Thailand last month compared to 3.95 million in December 2019

Desperate foreign tourism business concerns are clinging to straws as they try to survive the crisis

Strict entry criteria to remain as officials await clarity on the medical status of vaccinated people

Challenge of the virus and closure to tourism leads to major long term changes in the Thai economy

Finance Minister says economy must pivot away from tourism with a switch to S-Curve industries

Steady as she goes economy driven by exports and public investment with a 3.3% growth rate forecast for 2021

Thailand’s tourism boss targets thousands instead of millions as public health is prioritised above all

Thailand unlikely to reopen doors to mass-market tourism before the end of 2021 until after a full vaccination

Strengthening baht predicted as investors bet on a reopening of Thailand to mass tourism in 2021

Economic picture continues to darken as cabinet approves new ฿700 billion loan to plug the gap of higher deficits

Thailand facing a credit crunch as 3rd virus wave craters the kingdom’s economic recovery plans

3rd virus wave now spells not just economic loss but financial danger as kingdom’s debt level rises

Still time to avoid lockdown says Health Minister as 3rd virus wave dwarfs all infections to date

Thai economy is still in reverse despite rising confidence and a virus threatening a 3rd wave

Reopening of Phuket still not officially approved although it is the ideal test for a broader move

Minister urged not to be afraid to borrow in 2021 as fears grow for a quick foreign tourism revival

Economy to rebound as the year progresses driven by exports and a return of mass foreign tourism

Door closing on quick foreign tourism return as economic recovery is delayed to the end of 2022

Phuket’s plan to self vaccinate on hold as Interior Ministry orders private sector out of vaccine deals

Refloat of foreign tourism in the 2nd half of 2021 with vaccines pushed by minister and industry for the sector

Fact – only 6,556 visitors arrived in Thailand last month compared to 3.95 million in December 2019

Desperate foreign tourism business concerns are clinging to straws as they try to survive the crisis

Finance Minister says economy must pivot away from tourism with a switch to S-Curve industries