Despite the fast-rising inflation driven largely by food and energy costs, some economic research houses have recently revised upward or at least maintained their economic growth projections for Thailand for the year.
Siam Commercial Bank’s Economic Intelligence Center (EIC) recently revised upward its economic growth forecast to 2.9 percent this year, up slightly from the previous projection of 2.7 percent, citing a recovery in tourism and services.
Kasikorn Research Center maintains its economic growth projection of 2.5-2.9 percent, citing positive impact from the government fully reopening the country to foreign travelers from June 1.
The almost consensus view among economists is that the country is set to gain from reopening its doors to tourists. COVID-19 quarantine and related visa application rules have been scrapped.
The number of tourist arrivals has so far risen faster than predicted by many observers.
“We expect Thailand to welcome 7.4 million foreign tourists this year, up from the previous estimate of 5.7 million,” said Somprawin Manprasert, chief economist at EIC.
As popular tourist destinations, such as Bangkok and Pattaya ease the facial mask rules, the vibrant nightlife of the past has started to return.
Removing cannabis from the narcotics list, debatably, has partly helped accelerate the recovery of the tourism industry. Despite the government announcing that marijuana will be restricted for use in the medical field and not for recreational purposes, the authorities are apparently turning a blind eye to local shops and entertainment venues selling marijuana for recreational use.
Many are still cautious about the economic impact of the decriminalization of cannabis, despite Public Health Minister Anutin Charnvirakul, who has spearheaded the push for taking cannabis off the narcotics list, claiming it would boost the local economy.
“I do not see it as a cash crop, but it is just an alternative one and only big businesses will gain from this business,” said Somporn Isvilanonda, senior researcher at the Knowledge Network Institute of Thailand.
He warned that should the Thai government allow widespread consumption of marijuana, trading partners not convinced about its safety may retaliate against Thailand.
Critics say the cost of treating those who may suffer from the consumption of cannabis could offset the gains from cannabis use. There are also worries of crimes or car accidents linked to the consumption of cannabis costing society.
Tailwind: food export
Many countries are suffering from the world food crisis caused largely by Russia’s invasion of Ukraine, though Thailand is lucky to be one of the leading food exporters.
“Thai exporters stand to gain from exporting processed food,” said Somporn.
Many countries have banned food exports as they try to cool down hot domestic prices.
Malaysia recently banned live chicken exports to Singapore, resulting in importers buying more frozen chicken from Thailand. India has limited wheat exports and Indonesia had previously banned export of cooking palm oil.
Market observers now wonder whether the price of rice will shoot up just like wheat, because rice could become a substitute grain for wheat or other high-priced grains. So far, the price of Thai rice has not changed much in the global market from last year. Due to abundant global supplies, the price of rice remains low.
“Importers have bought more rice from India due to its much lower price compared to Thai rice,” said Somporn.
Thai farmers could gain from food prices if they could keep costs down amid rising prices of fertilizers and animal feed. Russia and Belarus are leading fertilizer exporters but the ongoing war and the economic sanctions imposed on them have disrupted the supply of fertilizers needed to increase crop yields and grains needed to produce animal feed.
Headwind: high energy prices
Rising energy prices have affected manufacturers, exporters, farmers, and consumers.
The government has subsidized energy prices to keep diesel and cooking gas prices at a level lower than market prices, which has resulted in the state Oil Fuel Fund racking up a deficit of close to 100 billion baht. The government vows to keep the diesel price at not more than 35 baht a liter until the end of this month and may later allow it to rise to the next ceiling target of 38 baht.
The government has tried to seek cooperation from oil and gas refineries as it is running out of cash. The government has argued that the companies make high profits from their refinery operations so they could contribute a part of their gains to the Oil Fuel Fund, which is a vehicle to keep the price down.
But such a move risks having an adverse impact on investor confidence as firms listed on the stock market are required by law to protect the interests of shareholders. The government is trying to tread a fine line between market stability and investor confidence.
The Thai government is not alone in facing such a dilemma. The US government is also in the process of asking for contributions from energy and oil companies.
High inflation driven by energy and food prices is pinching both businesses and consumers.
The situation also overlaps the weakening of the baht against the US dollar. The baht has recently plunged to about 35.5 per dollar from 32-33.
A weaker baht will make oil and gas imports more expensive, piling more pressure on the already 13-year-high inflation.
The rapid rise in US interest rates has also led to capital outflows with investors opting to sell Thai shares and bonds.
The US Federal Reserve raised its benchmark rate to 1.5 to 1.75 percent after it made an aggressive rate hike of 75 basis points on June 15.
The widening spread between the US and Thai interest rates, after the Bank of Thailand (BOT) held on to its policy rate of 0.5 percent, has contributed to capital outflows from Thailand and in turn, further weakened the baht.
Against this backdrop, the BOT is expected to raise rates at the next meeting of the Monetary Policy Committee in August.
The BOT is facing a difficult juggling task, as on the one hand, it has to keep the interest rate low to accommodate economic growth, which has not fully recovered from the COVID-19 fallout, but on the other hand, it has to address rising inflation and the weakening exchange rate.
Headwind: external factors
As a net importer of energy, Thailand has less room to maneuver oil, gas, and electricity prices to lower cost for manufacturers and consumers.
Many countries are waiting to see how the war in Ukraine will develop. Should the two conflicting parties settle their conflicts soon, it would be good for the global and local economies, otherwise, it would have to endure a long period of hardship.
The COVID-19 pandemic could still pose a threat as containment measures are being eased with face masks no longer a requirement in public places, and large public gatherings allowed. Economists and business leaders still see COVID-19 as a threat to economic recovery.
“A slowing global economy will start to adversely affect Thai exports. The global economy is facing the headwinds of the Ukraine war, concerns about shortage of food and commodities, high inflation, rate hikes, supply chain disruption in the manufacturing sector, and the slowing down of China’s economy,” said Sanan Angubolkul, chairman of the Thai Chamber of Commerce.