Manufacturing outlook remains weak, while interest rate cuts are uncertain
Analysts are downgrading GDP growth estimates for this year and next as the export outlook turns patchy, the manufacturing slump deepens, the tourism recovery is uneven and the likelihood of interest rate cuts by the Bank of Thailand this year seems limited.
Maybank IBG Research, a unit of the Malaysia-based banking group, slashed Thailand’s GDP growth forecast for this year to 2.4% from 2.9%, and for 2025 to 2.8% from 3%, based on lacklustre manufacturing activity weighing on growth.
“We project first-quarter growth to come in at only 1%, in line with the central bank’s projection, hampered by slumping government spending,” said Erica Tay, director of macro research at Maybank.
With the fiscal budget receiving royal approval last week, public spending should surge from the mid-year, lifting growth to 3.3% in the second half, noted the research house.
Despite weakening fundamentals, external developments in financial markets mean the Bank of Thailand’s window for easing this year is becoming limited, said Maybank.
“There is a higher than even chance the central bank will hold rates at 2.50% at its next meeting in June,” said Ms Tay.
According to Maybank, Thailand’s industrial production fell for the 18th consecutive month, down by 5.1% year-on-year in March compared with the consensus of 1.9%, after contracting 2.8% in February.
Factory capacity utilisation slackened to 57% and production sank across the board, led by automotive (-22.1%), semiconductors (-15.3%), appliances (-4.5%) and cement and construction materials (-9.9%).
Output also fell, but most domestic-oriented manufacturing clusters dipped less sharply than export-oriented ones, noted the research house.
The Bank of Thailand’s latest economic report showed private consumption fell 0.6% year-on-year in March and rose 1.6% in the first quarter, in contrast with the 6.7% growth posted last year.
Private investment indicators, which have been resilient, also contracted last month, led by weaker machinery (-8.8%) and construction material (-13.3%) sales.
For the remainder of 2024, auto production is expected to be buffeted by the headwinds of softer domestic demand and intense competition from Chinese electric vehicles (EVs) in the export market, as Thai EV manufacturing capacity gradually develops, said Maybank.
According to BofA Securities, a unit of Bank of America, the number of international flight arrivals, excluding those from China, Taiwan and Hong Kong, declined from 393 flights per day in March to 385 flights in April.
The peak season for Europeans ended around January. For the first three months this year, tourist arrivals totalled 9.37 million, or 86.8% of the tally in 2019.
The tourism sector has entered the low season, which lasts through September.
“A key downside risk to our forecast is the recovery of Chinese tourist arrivals as other countries have almost recovered to their pre-Covid levels,” Maybank said in the research note.