Growth is likely to be similar to last year at 2.6% but only if the rebound in exports continues for the next few months, even though they are expected to be down on 2022 figures. In the meantime, the private sector and businesses are labouring under heavy and more expensive debt levels

The new government of Srettha Thavisin is already facing solid economic challenges to its plans to boost annual growth to 5% per annum, with GDP set to grow only by between 2.5% and 3% this year with the country dogged by high levels of private sector debt, a lack of productivity which declined from 2020 to 2023 due to its ageing population and a troubled world, where war, tensions and the higher cost of money dim trade and growth prospects. Against this backdrop, the level of public debt is rising while the costs of government borrowing are set to increase significantly. The darker outlook for world economic growth coincides with higher borrowing costs, and for Thailand, the real impact of the country’s demographic crisis coming to bear on an economy that never made it to the promised land of a developed, high-income economy.

The Permanent Secretary at the Ministry of Commerce, Mr Keerati Ratchano, this week, revealed export figures for September, which showed a second month of gains ahead of last year, driven by agricultural output, including a 51.4% jump in rice sales. The news comes as sentiment in the industrial sector continues to decline, with a fall in both auto sales and production.

The economy is set to grow between 2.5% to 3% in 2023 following a revival in exports in August and September driven by agricultural output, which promises to help reverse a 3.8% contraction in exports seen for the first nine months.

This economic snapshot is according to figures released this week by the Ministry of Commerce and presented by the Permanent Secretary, Mr Keerati Ratchano. 

A key output driver was the export of rice, believed to be caused by growing world food insecurity because of geopolitical tensions.

Exports up in September, driven by agricultural output, gave the Kingdom a trade surplus of $2.092 billion for the month; rice sales were up 51.4%

Mr Keerati presented figures which showed that Thailand exported $24.76 billion in September, an increase of 2.1% from the same period last year when the figure was $23.83 billion. 

It was the second expansion in exports this year, according to the Ministry.

The Kingdom saw a trade surplus of $2.092 billion.

Nonetheless, for the nine months of the year overall, given the retarded level of exports up to August, Thailand has a trade deficit of $5.832 billion to September 30th.

The figures for September show a pronounced rise in agricultural exports with a surge in rice shipments, up 51.4%, followed by cassava products at 3.7%. 

This is believed to be linked to rising food insecurity because of the Russian-Ukraine war and the effects of drought in many countries.

Mr Keerati told reporters that although the government’s target was for a 1% increase in exports in 2023, it now looked like the figures will show a contraction, although not nearly as bad as feared only last month when a 2.1% contraction was predicted. 

The figure, now in prospect, is a 1% decline in exports this year. 

Industry hopeful that the conditions exist for an improvement in the last three months of the year, including October, but expects an annual contraction

The export trend for the remaining three months of this year should be good and continues to be positive, according to the senior official.

‘This is because different countries are accelerating the import of agricultural products to cope with a worldwide food shortage sparked by drought conditions, and we are now approaching the Christmas and New Year ordering season,’ he said.

His comments were supported by Mr Chaichan Chareonsuk, the Chairman of the National Shipping Council of Thailand, who said that the conditions were right for a rebound in Thailand’s exports in the October to December period but predicted that the result would be a 1% contraction for the year overall.

Mr Keerati highlighted the fact that freight rates were stable and that the war following the invasion of Israel by Gaza is not likely to impact international shipping at this point.

At the same time, he highlighted this as a particular risk factor, among others, which must be closely monitored.

The new government is struggling to revive a sluggish economic recovery beset by chronic difficulties and impeded GDP output growth in a divided world

The figures are some respite for the new government, which is anxiously trying to implement its pro-growth policies in the face of rising government borrowing and a host of chronic economic problems which continue to severely impact Thailand’s financial performance, such as strained household debt levels and slow productivity growth within the labour market because of an ageing population.

However, with growing economic turmoil in China, a more fractious geopolitical world and the rising cost of money, the ability of the global economy to grow needs to be improved.

The world economy has entered a darker era.

The country’s finances are also becoming an issue as the new government tries to fund its efforts to reduce the cost of living and spur economic growth with stimulus measures.

Public debt level creeping up as private sector credit reaches its limit amid a tightening of monetary policy with Thai interest rates only half the US 

At the end of August, before the government took power, Thailand’s public debt stood at 61.8% of GDP after the previous government extended the ceiling under the State Fiscal and Financial Disciplines Act 2018 to allow a 70% extended ceiling of government debt compared to GDP.

At that point, the debt stood at approximately ฿11 trillion. 

The debt tally includes the emergency loan taken out by the previous government in various tranches amounting to ฿1.5 trillion. 

While Thailand’s public debt is well below those of Western countries, it must be borne in mind with its chronic household debt problem, which the central bank is working assiduously to tackle. 

Figures for the opening nine months of 2023 from the country’s commercial banks show only a 0.71% expansion in loan book values, with several banks, including Kasikorn Bank and Thanachart Thai Military Bank, cutting back on loan advances by 2.29% and 0.98% in the same period. 

The tightening of credit in the country’s banking system is also coming with a rise in interest rates ushered in by the Bank of Thailand in a unanimous vote by its Monetary Policy Committee on September 27th.

The decision raised Thai interest rates to 2.5%, the highest level since October 2013, but well below the 5.5% to 5.75% rate seen in the United States and the Southeast Asian region among the country’s peers.

Car sales have gone through the floor, with output also expected to be below 2022 levels, with an 8.45% contraction seen in September from last year

A shortage of consumer credit caused by high bad loan reports at the beginning of 2023 has hit the sale of cars hard, which has impacted Thailand’s significant car production industry, already facing challenges from the promotion of EV cars.

This week, the Vice President of the Automotive Industry Group within the Federation of Thai Industries, Mr Suraphong Paisitpattanaphong, predicted that car production in 2023 will decrease by 50,000 cars from 1.9 million to 1.85 million. 

The final tally will be driven by a 5.88% reduction in the number of vehicles being produced for Thailand’s own domestic market, falling from 850,000 to 800,000 cars.

The Auto Industry executive highlighted that these are primarily pickup vehicles, which have seen a sharp decline this year as customers could not obtain finance approval because of the more stringent credit conditions.

The downturn in car production has extended into September, with an 8.45% reduction in vehicles to 164,093 compared to last year. 

Of these, 59,907 were for the domestic market, a decrease of 17.87% from the previous year.

Government’s lower electricity cost policy praised by industry even as sentiment declined in September

The challenging economic environment has been helped by the efforts of the new Cabinet to bring down the cost of electricity after it reduced the unit rate for the September-December period from ฿4.45 per unit to ฿3.99.

The overhead saving was one of the bright spots in a sentiment survey of Thai industry for September, revealed to the media this week by Mr Kriengkrai Thiennukul, the Chairman of the Federation of Thai Industries (FTI). 

He highlighted that the Thailand Industrial Sentiment Index (TISI) had decreased in September to 90 points from 91.3 in August. 

It comes despite the uptick in exports, which is driven by agricultural output rather than by the manufacturing sector. 

Real Fears that Pheu Thai’s unwieldy and increasingly controversial Digital Wallet credit giveaway will lead to political instability in months ahead

The choppy economic waters are coming as the new Prime Minister Srettha Thavisin is dealing with a blowback to his signature policy of Digital Wallet giveaway, with multiple state agencies poised to investigate the plan and real fears that ministers may find themselves criminally liable if they do not act with care and foresight because of previous experience in the 2011 to 2014 Pheu Thai government with a rice-pledging scheme which ultimately collapsed in disarray.

In recent weeks, popular political pundit and former street protest leader Mr Jatuporn Prompan has predicted the policy, if it is pursued, will cause the breakup of the new government sworn in on September 5th.

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The embattled Prime Minister has already acknowledged this week that the benefits of the scheme will not be extended to those earning more than ฿25,000 per month and will probably be delayed beyond the February 1st, 2024, date initially set for its launch.

Government raises the possibility of selling bonds abroad, a reversal of a multi-decade-old policy which has seen Thai public debt held at home

Mr Srettha insists that the government is united behind the policy.

Still, comments this week from Deputy Prime Minister and Minister of the Interior Anutin Charnvirakul supporting the government’s efforts also highlighted that there was, at this moment in time, no plan before the Cabinet to pay for the expensive stimulus package which is set to be scaled back from a ฿560 billion measure to ฿400 billion.

Officials at the Ministry of Finance are trying to formulate a viable funding plan for an already controversial and complicated stimulus measure, which could have been a better vote winner in the May 14th General Election.

The government was scheduled to go to the market to sell bonds between now and December.

This week, the Deputy Finance Minister, Mr Julapun Amornvivat, announced that the Prime Minister has asked the Public Debt Management Office (PDMO) to try to explore foreign markets for the sale of Thai Government bonds.

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These are now priced at a higher yield than in previous years, making government borrowing more expensive. 

Under the previous government and for the last few decades, the the Treasury raised money from the domestic market, with up to 98% of bonds sold to domestic holders priced in Thai baht. 

2023/2024 Budget includes $2 billion or ฿70 billion in funding from the sale of government bonds, a process managed by the Public Debt Management Office 

‘The Prime Minister suggested we should explore foreign markets to establish a benchmark to the private sector because we haven’t entered foreign markets for the past 30 years. We need to secure our position on the global stage. Mr Srettha recently travelled abroad to attract foreign investment,’ Mr Julapun said this week. 

‘In issuing such bonds, we need to determine the appropriate timing and consider various factors, especially the interest rate differentials between Thailand and foreign markets, to avoid having negative effects on the Thai economy.’

The 2023-2024 budget for the government makes provisions for the sale of $2 government bonds.

The Public Debt Management Office (PDMO) has been tasked with marketing and selling sustainability-linked bonds to a value of $2 billion or ฿70 billion. 

Asked about a previous media briefing which suggested that there is already substantial and strong interest in these bonds, the minister also addressed reporters’ questions on the rising cost of such borrowing.

Mr Julapun, the junior minister at the Ministry of Finance, which is headed directly by the Prime Minister, Mr Srettha, suggested that the current financial environment means that the cost of Thai public debt will rise from 2.66% to 3% per annum as the costs of money worldwide begins to climb higher. 

The problem for the government of Srettha Thavisin is that Pheu Thai’s economic policy agenda, which is the blueprint for the new government, is predicated on achieving 5% growth per annum, something that many commentators question and suggest may no longer be possible for Thailand in the future at all given the country’s fading workforce and high levels of intractable private sector debt.

Thailand has fallen into the Middle-Income trap

In essence, the fear is that Thailand has fallen into the very middle-income trap, which previous governments vowed would not happen. 

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The pandemic disaster in 2020, when the economy nearly closed for an extended number of weeks and saw a GDP contraction of 6.1%, brought per capita GDP to $7,002. As with China, it appears to have inflicted permanent damage to Thailand’s economic prospects.

The GDP per capita can be compared to a figure of $6,909 for 2022 despite a 2.6% rise in GDP for that year after a 1.6% rise in 2021.

The figure was a 2.15% fall on the GDP per capita figure of $7,061 in 2021.

These figures show the country is still capable of expanding its workforce, but this will only last up to the end of this decade while overall productivity is declining. 

In 2030, Thailand is set to become a super-aged society.

Having become an aged society in 2021, with 14% of the population being over 65 years of age, this figure over the next seven years is set to rise to 28% of the population.

Thailand is moving on quickly towards becoming a super-aged society where productivity has stalled or even reversed since 2019 due to the pandemic

The facts are stark: Thailand has not developed a high-income economy while it is now certainly on the path to becoming a super-age society and one that may not be capable of achieving the economic miracles as seen in Norway, Ireland, Luxembourg and even Singapore in Asia. 

In social terms, Thailand’s unique traditional culture, where young adults are likely to be more respectful towards their parents and where families are resilient, may assist the country in what is to come.

The government will not be encouraged by figures released by the Ministry of Commerce on Wednesday, which showed that for the first nine months of 2023, foreign investment fell by 16.7% from last year, with only ฿84.01 billion committed from 493 planned foreign business proposals which received permits to be a part of investment schemes with government concessions. 

Foreign Investment is down in 2023

It should be noted that these figures do not imply actual investment but are an indicator of future investment trends.

The Ministry noted a significant increase after the new government came to power, with ฿18.23 billion being committed to the Business Development Division of the Ministry of Commerce in September.

For the first nine months of 2023, Japan was again Thailand’s leading foreign investor, followed by the United States and Singapore.

Half, or 51.36%, of the investments issued, are linked to attractive tax concessions offered by the Thai government located in Rayong province, which is one of three provinces which constitute the Eastern Economic Corridor (EEC), a project of the military junta government launched in 2016.

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