The Thai economy will continue to grow slowly in 2020, albeit slightly faster than this year. It is projected to expand at 2.5-3.0%, compared with 2.5% in 2019, in line with faster growth in the global economy next year. The Thai economy’s main drivers in 2020 will be recoveries in export volumes and tourism, and greater government spending. Moreover, relocation of investment from China to Thailand as a result of the US-Sino trade war will be more evident in 2020. However the trade war will continue to pose serious downside risks as its affects on trade, the Chinese economy, and investor confidence persist.
Thai exports in 2020 will continue to be affected by the global trade slowdown, but volumes will be slightly higher than in 2019. The ongoing US-China tariff war has resulted in slower trade growth and deceleration of the Chinese economy, impacting Thai exports which were expected to contract by 2% in 2019. With trade hostilities expected to ease in 2020, Thai exports should grow modestly. Moreover, Thai exports to the US, which expanded by almost 15% in 2019, will continue to grow as the US diverts imports away from China, to Thailand and other countries. Exports of hard-disk drives and compressors to the US, for example, have expanded rapidly in 2019.
Tourism recovered in the second half of 2019 and will continue to grow in 2020. Arrivals and receipts began to rebound in July 2019 with the high growth of Indian tourists and recovery in Chinese numbers. The latter is the result of restored confidence after the boat accident in Phuket in mid-2018 and also mainly Chinese visitors diverting to Thailand from Hong Kong. In 2020, tourism receipts are projected to rise by 4.5%, from 4% in 2019.
Relocation of companies from China began in 2019 and will be more evident in 2020. These include Chinese and non-Chinese firms that are shifting production and supply chains out of China amid trade war uncertainties. Relocation to Thailand will be mostly by Japanese and Chinese companies into the Eastern Economic Corridor, evidenced by the rapid growth of bookings in EEC industrial estates. Firms relocating are capital intensive, and include makers of automotive parts and electrical appliances.
The baht will maintain its strength in 2020. Capital inflows from the recovery in exports, tourism and foreign direct investments in 2020 will keep the currency strong. The baht hit an average of 31.05 per US dollar in 2019 and is forecast to average 30.30 in 2020, similar to its end-2019 level. It will continue to be stronger than the currencies of Asean’s top five economies in 2020.
Government spending, particularly public investment, will speed up in 2020. With the passage of the fiscal-year 2020 budget in February, disbursements for public investments will accelerate. The Bank of Thailand projects public investment will rise by 6.3% in 2020, compared with only 1.7% in 2019. Moreover, government spending on income support and consumption stimulus programmes, which totalled 1% of GDP in 2019, will continue next year since growth will be uneven for different sectors and consumption confidence will stay low.
Farm incomes in 2020 may not rise much over this year, with drought forecast. Yet global prices of rice and rubber in 2020 are projected to increase this year. The government is also providing income support and price guarantees for farmers of crops such as rice, rubber, palm and corn. However, drought at the beginning of 2020 will impact production, especially of rice, thus affecting the overall incomes of farmers in 2020.
Consumption in 2020 will slow. With uncertainty over incomes, high household debt, and low consumer confidence, consumption in 2020 will grow more sluggishly than that of this year. This is particularly true for purchases of durable goods like cars which have grown rapidly over the past three years.
With slow growth of consumption and exports, manufacturing production and domestic investments are unlikely to accelerate in 2020. With uncertainties over future demand and the low capacity utilisation of around 65% at end-2019, private investments will likely continue to grow at a slow rate in 2020. This is also evident in the decline in Board of Investment (BOI) certificates issued as well as investments since mid-2018. Moreover, with the dampening and oversupply in the property sector, construction – which is considered to be private investment – will continue to be slow in 2020.
Although the Thai economy will continue to expand in 2020, growth will be uneven and downside risks high. Sectors linked to tourism, logistics, e-commerce, and to companies that relocate from China will continue to grow, along with exports that benefit from trade diversion to Thailand. On the other hand, large sectors such as agriculture, property, and automotives, along with their supply chains, will grow slowly in 2020. Trade uncertainties from the US-China tariff war, China’s slowdown, and the strong baht will continue to pose big downside risks for businesses in Thailand.
Kirida Bhaopichitr is Research Director for International Economics and Development Policy at the Thailand Development Research Institute. Policy analyses from the TDRI appear in the Bangkok Post on alternate Wednesdays.
First Published: Wednesday, December 25, 2019