Thailand Monthly Economic Monitor 22 April 2022 The Omicron wave and the Ukraine war have further set back Thailand’s recovery and prompted a downward revision of the World Bank’s growth projection to 2.9% in 2022. Inflation surged to a 13-year high on the back of rising global energy prices while consumer confidence fell to a 6-month low amid the Omicron wave. The government has announced new fiscal measures to help mitigate the rising cost of living. Foreign tourist visits increased in February as borders reopened but remains well below pre-COVID levels. The current account remained in deficit due to the large fuel and services trade deficit. The Thai baht continued to depreciate in April as US treasury yields surged and investor confidence waned. Rising global energy prices in the wake of the Ukraine Figure 1: Inflation Continued to Rise Above Target (Percent year-on-year) war have driven the surge in inflation. Headline inflation 5.0 Target Range (1-3%) Energy rose to 5.7% in March from 5.3% in February, the highest rate 6.0 Raw Food Core inflation 4.0 in 13 years, breaching the Bank of Thailand’s target range of Headline inflation 3.0 1-3% for the third consecutive month. Rising prices of fuel, 4.0 2.0 food, and electricity continued to drive this surge, while core 2.0 1.0 inflation climbed to 2% (Fig. 1). Second-round inflation 0.0 pressures are expected to remain contained due to subdued 0.0 -1.0 domestic demand and well-anchored inflation expectations. -2.0 -2.0 Inflation expectations remain below 2% for both short-term (1- -3.0 year ahead) and medium-term (5-year ahead) expectations, -4.0 -4.0 according to the BOT’s survey on businesses and the 2011 2013 2015 2017 2019 2021 consensus forecast. However, the increase in the producer Source: MOC; CEIC; World Bank staff calculations price index (PPI) of 9.8% in the first quarter, mainly due to the Figure 2: PPI and CPI Were Higher Than Peers rise in the prices of energy, chemical products, metal (Percent year-on-year, average Q1 2022) products, and food has yet to be fully passed through to 9.5 9.8 10.0 consumers. Also, PPI and CPI inflation rates surpassed those PPI CPI of regional peers (Fig. 2). Meanwhile, the Bank of Thailand 8.0 reaffirmed that it will maintain monetary accommodation, 6.0 4.7 4.2 keeping the policy rate at 0.50% to support economic 4.0 3.2 3.0 recovery. 2.3 2.2 2.0 The government approved additional fiscal measures to 0.0 Indonesia Philippines Malaysia Thailand mitigate the rising cost of living. To counteract price pressures and support vulnerable households, the *Average of January and February for the Philippines and Malaysia Source: CEIC; World Bank staff calculations government announced new fiscal measures amounting to THB 120 billion (0.7% of GDP). These measures include the Figure 3: New Cases Continued to Rise in Thailand (New COVID-19 cases per million, smoothed, log-scale) extension of the co-payment scheme by THB 43 billion (0.26% Indonesia Malaysia Philippines Thailand of GDP), which was announced in January, and a new set of measures totaling THB 77 billion (0.46% of GDP) (Table 1). 1000 These measures include cuts to employers' and employees’ 100 contributions to the Social Security Fund, welfare subsidies targeting lower-income groups, and a cap on diesel prices at 10 THB 30 /liter until the end of April. After the cap is removed the 1 government will raise the price at a gradual pace by subsidizing half or more than half of the diesel price above 30 0 baht per liter. Funding for these new measures will be drawn Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 from the budget and additional off-budget borrowing, totaling Source: Ourworldindata; World Bank staff calculations 0.26% of GDP, as well as other sources such as the state- THAILAND ECONOMIC MONITOR | 1 owned oil and energy company, PTT. Public debt rose to Figure 4: Mobility Fell as Cases Increased (Google Index, average of transit, retail and recreation, and workplace) 60.2% of GDP by the end of February, and it is projected to 10 Indonesia Malaysia Philippines Thailand rise to 62.6% by end-2022. 0 -10 The Omicron wave continued to weigh on consumer -20 confidence. While the relaxation of lockdown measures and -30 reopening of borders supported private consumption, rising -40 COVID-19 cases weighed on consumption recovery. Average -50 new daily COVID-19 cases stayed above 20,000 cases during -60 the first two weeks of April (Fig. 3). The COVID death rate -70 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 edged up from 0.2% of confirmed cases in January and Source: CEIC; World Bank staff calculations February of 2022 to 0.4% in April, although still well below the 1.3% of September 2021. Consumer confidence declined to Figure 5: Foreign Tourism was Driven by Europe a 6-month low, from 63.4 pts in February to 61.5 pts in March. (Thousand people) The survey results show that rising energy costs due to the 250 Others Ukraine war and concerns about the Omicron variant Middle East Oceania outbreaks have affected consumer spending. The mobility 200 USA index dropped in March (Fig. 4) 150 Russia Europe (exclude Russia) The ongoing Omicron wave and the Ukraine war are 100 ASEAN Korea setting back the recovery. Growth is now projected at 2.9% 50 Japan in 2022, revised downward from 3.9% (Thailand Economic China 0 Monitor December 2021), due to the Ukraine-Russia conflict Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21 Jan-22 Feb-22 and an expected economic slowdown in the US and China. The increase in energy prices is projected to slow private Source: MOTS, CEIC; World Bank staff calculations consumption, while weaker global demand is expected to Figure 6: Falling Global PMI Is Pointing to Weaker weigh on merchandise exports. Despite the recent relief Exports Outlook measures, the fiscal deficit is projected to decline from 7.8%to (Index, sa) 3.9%. The return to pre-pandemic output levels is expected to 60.0 Manufacturing PMI: Global 150 be delayed to 2023. Thai Exports Index, 2019=100 sa, RHS 55.0 125 Tourist arrivals are projected to increase as borders reopen. Tourist arrivals were 153,954 in February, up from 50.0 100 133,903 in the previous month as the Test & Go program resumed (Fig. 5). Tourists from Europe (excluding Russia), 45.0 75 ASEAN, and the Middle East were the main contributors to the increase. Since the reopening of the borders in 40.0 50 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 November, Thailand has received 600,000 arrivals which Source: CEIC; World Bank staff calculations remains 95% below the same period in 2019. Tourist arrivals are projected to increase to around 6 million in 2022 or 16% Figure 7: The Current Account Stayed in Deficit of the arrivals in 2019 as remaining restrictions are likely to be (USD Million) 30000 removed by the second half of the year. However, the 20000 recovery is likely to be gradual due to the ongoing Omicron wave, continued travel restrictions by China, and the impact 10000 of the Ukraine–Russia wart. 0 -10000 Exports of goods expanded in February but weakening -20000 external demand has dimmed the outlook. Goods exports -30000 increased by 16.0% (yoy), up from 7.9% in the previous Q4-19 Q2-20 Q4-20 Q2-21 Q4-21 month, due to higher exports of metal and steel, petro-related Primary Income & Secondary Income Balance Trade Balance, excludes Fuel and Minerals products, and electronics. However, weakening global Services Balance demand is likely to slow exports going forward. As of March, Fuel and minerals Balance Current Account Balance the global purchasing manager index, which provides an Source: Bank of Thailand; CEIC; World Bank staff calculations THAILAND ECONOMIC MONITOR | 2 indication of demand for Thai exports, dropped to 53.0 pts, Figure 8: Financial Inflows Rose Substantially the lowest level in 18 months (Fig. 6). As a result, the current During Jan-Feb 2022 (Left: THB million, Right: THB per US dollar) account balance is expected to continue to register a large 150,000 34.0 TH: Equity Foreign net buy deficit as external demand softens, while consistently high TH: Bond Foreign net buy: Short-Term (TTM<=1Y) 33.5 TH: Bond Foreign net buy: Long-Term (TTM>1Y) energy prices will drive strong import bills (Fig. 7). In the first 100,000 USD/THB, RHS 33.0 2 months of Q1, the current account deficit widened to 3.4% 32.5 50,000 32.0 of GDP from 1.0% of GDP during the same period last year. Apr 1-8 31.5 - 31.0 The Thai baht continued to depreciate in April as US 30.5 treasury yields surged. The Real Effective Exchange Rate -50,000 30.0 (REER) continued to weaken in April after falling by 0.7% 29.5 (mom) in March, due to global investors’ expectations that the -100,000 Jan 20 Jan 21 Jan 22 29.0 Fed would move rapidly to reduce its balance sheet, pushing US treasury yields higher. The Thai baht depreciated more Source: SET; Thai BMA; CEIC; World Bank staff calculations than regional peers, due to the monetary policy divergence between the Fed and the BOT, falling domestic confidence due to the Omicron wave, as well as the current account deficit. The Thai bond and equity markets registered small net inflows of THB 10.3 billion during the first 2 weeks of April (Fig. 8). Table1: Summary of Government Relief Measures measures Fiscal cost Budget THB mn % of GDP Feb-22: Co-payment Phase 4: A subsidy program under which the government pays 50% of the cost of food and 43,500 0.26% Borrowing for general goods purchased by participants COVID relief Mar-22: Measures to mitigate rising costs of living due to energy prices 43,260 0.26% 1. Subsidy of diesel oil and - Cap on diesel at THB 30 per liter until April 39,520 0.24% Borrowing for the gas - Cap on cooking gas at THB 333 per kg. from April 1 (up from THB 318) State Oil Fund 2. Welfare subsidies - Cook gas price subsidy of 100 baht/3 months for welfare cardholders (April - June) 3,740 0.02% Central Budget - Monthly cash handout of 250 baht/month for 3 months for motorcycle taxi drivers to purchase fuel (May - July) - Limited increase in electricity price to 0.22 baht/unit for households using electricity below 300 units per month (May - August) 3. Cuts to Social Security Employers' and employees' contributions lowered from 5% to 1% (11.2 million - - Social Security contributions for employees), former employees under Article 39 (1.9 million), and freelance/self- Fund employees and employers employed under Article 40 (10.7 million) from May to July 4. Additional energy - Cap on NGV price (THB 15.59 per kg) - - PTT Plc. measures from PTT Plc. - Cut to NGV price for taxi drivers to 13.62 baht per kg - Cook gas price subsidy of 100 baht/month for street vendors who hold the state welfare card Total 86,760 0.5% Issues to Watch: News Highlights: • Inflation: Will inflationary expectations remain well- • Thailand approves support measures to cope with high anchored? energy prices (Reuters, Link) • Trade: Will the Russia-Ukraine conflict cause a • The government will next week consider scrapping the significant decline in merchandise exports, disrupt Test & Go entry scheme and Thailand Pass registration supply chains and lower tourism receipts? (Bangkok Post, Link) • COVID-19: Will the government continue loosening • Agency maintains Thai credit rating with a stable outlook, COVID-19 restrictions as planned? but government debt likely to rise (Bangkok Post, Link) Prepared by Warunthorn Puthong, MTI, under the guidance of Kiatipong Ariyapruchya and Kim Alan Edwards. For further questions, please email wputhong@worldbank.org THAILAND ECONOMIC MONITOR | 3 Selected Economic and Financial Indicators 2021 2022 2021 2022 2021 Q2 Q3 Q4 Q1 Nov Dec Jan Feb Mar GDP and Inflation (%YoY) GDP growth (real) 1.6 7.7 -0.2 1.9 Contribution to GDP growth: Private consumption 0.2 2.7 -1.9 0.2 General Government consumption 0.5 0.2 0.3 1.2 Gross fixed capital formulation: Private 0.6 1.6 0.4 -0.2 Gross fixed capital formulation: Public 0.3 0.3 -0.5 0.1 Net Exports of goods and services -4.1 -0.1 -9.2 0.5 Change in Inventory 4.2 3.1 10.7 0.1 GDP, nominal (USD Billion) 506 125 119 129 GDP, nominal (THB Billion) 16,180 3,914 3,918 4,296 Consumer Prices Index: Headline 1.2 2.4 0.7 2.4 4.7 2.7 2.2 3.2 5.3 5.7 Consumer Prices Index: Core 0.2 0.4 0.1 0.3 1.4 0.3 0.3 0.5 1.8 2.0 Output Indicators Manufacturing Production Index (%YoY) 6.5 21.0 -0.3 4.7 4.6 6.7 2.0 2.8 Capacity Utilisation (%) 63.0 62.7 58.5 64.5 65.2 65.2 65.7 64.8 Farm Production Index (%YoY) 1.3 2.2 4.1 -1.4 -1.9 0.8 0.9 8.5 Service Index (%YoY) -2.3 -0.6 -1.8 4.0 3.3 5.7 10.1 9.5 Labor Market Unemployed workers (Thousand Persons) 748 732 871.3 631.9 Unemployment rate (%) 2.0 1.9 2.3 1.6 Underemployment/1 (Thousand Persons) 584 469 778 438 Underemployment (%) 1.5 1.2 2.1 1.2 Balance of Payments (USD million) Current account -10,582 -2,478 -5,173 -1,709 380 -1,611 -2,204 -652 Current account (% of GDP) -2.1 -2.0 -4.4 -1.3 0.9 -3.8 -5.2 -1.5 Trade Balance 39,955 10,929 9,264 10,876 4,238 2,835 596 3,391 Exports of goods (%YoY) 19.6 36.4 15.7 21.3 23.7 23.0 7.9 16.0 Imports of goods (%YoY) 24.5 39.0 31.8 20.6 13.5 28.2 18.4 14.2 Service, primary and secondary Income -50,537 -13,407 -14,437 -12,586 -3,857 -4,446 -2,801 -4,043 Tourist Arrivals (Thousand Persons) 428 20 45 342 91 231 134 153 Financial account -2,140 -1,927 2,636 2,293 Financial account (% of GDP) -0.3 -1.5 2.2 1.8 Foreign direct Investment, net -5,881 -1,726 -763 -4,495 Portfolio flows -11,284 -3,757 158 2,012 Others Investments 16,181 4,160 3,410 5,062 Central Government Budget (Fiscal Year, THB billion)/2 Revenue 2,858 842 824 671 - 192 260 260 186 - Expenditure 4,205 934 1209 1232 - 292 414 311 247 - Central Government balance -1,346 -91 -385 -561 - -100 -154 -51 -62 - Central Government balance (% of GDP) -8.4 -2.3 -9.8 -13.1 Public debt (% of GDP) 58.75 56.1 58.31 59.61 - 59.66 59.61 59.88 60.17 - Financial Markets Indicators Policy rate (%) 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 M2 (%YoY) 6.0 4.2 4.9 5.4 5.5 5.2 4.9 5.4 5.6 - SET Index 1,658 1,588 1,606 1,658 1,695 1,569 1,658 1,649 1,685 1,695 Thai government bond yield, 10 year (%) 1.90 1.57 1.89 1.90 2.26 1.85 1.90 2.11 2.15 2.26 Foreign exchange reserve and FX forward position (USD billion) 258 263 257 258 251 257 258 255 255 251 USD/THB, end of period 33.42 32.05 33.92 33.42 33.30 33.69 33.42 33.43 32.73 33.30 THB NEER, average 117.4 119.3 114.8 114.5 116.7 115.5 114.4 115.5 117.6 117.1 1/ Underemployment account for workers who work less than 35 hours per week and available for additional work (defined by BOT) 2/ Fiscal Year 2021 starts in October 2020 to September 2021, Fiscal Balance according to GFS Source: Office of the National Economic and Social Development Council, Bank of Thailand, Office of Industrial Economics, Ministry of Industry National Statistical Office of Thailand, Fiscal Policy Office, Public Debt Management Office, Haver Analytics THAILAND ECONOMIC MONITOR | 4