HSBC Remains Cautious On Thailand's Growth Prospects

HSBC: "It is difficult to be optimistic about Thailand's prospects for growth. 1Q 2024 GDP data will be out on 10 May. And as the FY2024 budget was approved by parliament only last week, there is a downside risk that 1Q GDP is below market expectations again, as it was in 4Q 2023 when public spending was the main drag.

And while visitor arrivals recovered to 93% of 2019 levels in February (The good news needed, 25 March 2024), this has not sparked a positive reaction. The THB and the SET have both moved sideways, suggesting that there's more to the underperformance of financial markets than tourism.

Then there is further policy uncertainty. Due to legal hurdles, the Digital Wallet Scheme has been further delayed to 4Q 2024, raising fresh questions about how it will be financed and implemented. According to officials, details will be announced on 10 April 2024 (Bangkok Post, 26 March 2024). This is the third deadline set for this fiscal stimulus initiative, pointing to more uncertainty. The key issue for investors is how to gauge the trajectory of fiscal policy, which is likely to determine the direction of monetary policy. As mentioned by the BoT's Assistant Governor, the timing and the size of fiscal spending will be an important consideration in terms of whether to cut rates or not (Bloomberg, 22 March 2024).

There are also uncertainties about the implementation of subsidies and the implications for inflation. The Oil Fuel Fund Office (Offo) has said that it can afford to subsidize diesel only until next month (Thansettakij, 19 March 2024). Two responses are possible here: 1) Subsidies are removed, leading to higher diesel prices and faster inflation, enough for headline CPI to return to within the BoT's 1-3% target band; and 2) Excise taxes on diesel (currently THB5.99 a litre) are cut, leading to wider fiscal deficits but subdued inflation. Either outcome is possible, as is something in between. Here, economic forecasters are uncertain about the outcome and have very different views. Based on the February Bloomberg Survey, full-year inflation forecasts for 2024 range from as low as -0.4 to as high as 2.0%. We think it will be 0.8%, but this estimate comes with a high level of uncertainty."