Thailand’s economy is off to a slow start in 2024, and continues to be a ‘two-speed economy’, in our view. Sluggish manufacturing and falling public activity remain as key growth drags, but with continued support from foreign tourism and private consumption. Manufacturing shrank for the 17th straight month by 2.8% YoY in February 2024, due to autos and electronics weakness. While the manufacturing purchasing managers index (PMI) improved to 49.1 in March 2024 from February’s 45.3, the eighth consecutive month of contraction suggests a fragile recovery, for instance from the upturn in the global electronics cycle. Regarding public activity, it will be a drag in the first four months of 2024, but the worst is likely over, following the late-March approval of the delayed FY2024 budget. Tourism and private consumption should remain as crucial growth engines. International visitor arrivals sustained above 3mn for the third straight month in February 2024, hitting 93% of February 2019 levels, and will see impetus from the permanent visa-free arrangement for Chinese tourists. Private consumption is supported by an uptick in consumer confidence to a 48-month high in February 2024, amid the government’s cost of living measures and rising tourism, with upside risks from the under-discussion digital wallet policy.
Thailand’s still soft economic performance after 2023’s growth deceleration is prompting the Bank of Thailand (BOT) to rethink its neutral interest rate during its upcoming April 10 meeting, amid government pressures to loosen monetary policy. Yet, we reckon that any policy rate cuts are likely to be a mild adjustment, and not likely to be an aggressive easing cycle. This is due to the need to balance with financial stability objectives, such as debt accumulation and excessive currency weakness.
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