Pattaya One News
Home » Global recession appears imminent how will the Thai economy cope
Alternative investing International National News Asia Pattaya News Ukraine War

Global recession appears imminent how will the Thai economy cope

The drumbeat warning of recession is getting louder and more frequent, based on reports from the US and other major economies.

Earlier this month the IMF warned that the outlook for the global economy had “darkened significantly” since April, and a worldwide recession next year was possible given the elevated risks.

The organisation cited a broader spread of inflation, increasingly substantial interest rate hikes, a slowdown in China’s economic growth, and escalating sanctions as a result of Russia’s war in Ukraine.ADVERTISEMENT

According to IMF managing director Kristalina Georgieva, recent economic data showed some large economies, including China and Russia, had contracted in the second quarter, with the risks even higher in 2023.

Nomura Holdings, a Japanese financial company, predicted many of the world’s leading economies will fall into a recession within the next 12 months as central banks move to aggressively tighten monetary policy to fight surging inflation.

According to Nomura, the depth of recession will vary among nations. In the US, it forecasts a shallow but long recession of five quarters, starting from the final quarter of this year.

In Europe, the slump could be much deeper if Russia completely cuts off gas to the continent.

Nomura underlined several mid-sized economies, including Australia, Canada, and South Korea, that recorded debt-fuelled housing booms. They are at risk of deeper recessions than initially forecast if interest rate hikes trigger housing busts and deleveraging, said Nomura.

Given these gloomy economic prospects, Thai business leaders and an economist say it is imperative that all parties in both the private and public sector lay out plans to offset the deleterious impacts and keep Thailand’s recovery on course.

Chance of US recession

Amonthep Chawla, head of the research office at CIMB Thai Bank (CIMBT), recently warned Thailand is likely to face many challenges in the second half of 2022, ranging from ongoing inflation increases to the risk of a US recession.

The research office does not think Thailand will go into recession, but rather a slowing economy. CIMBT said the Thai economy has the potential to grow faster than expected thanks to its reopening and the return of international tourists.

There is a chance the US will go into recession early next year as a result of the Federal Reserve’s hawkish policy rate hikes, but Mr Amonthep said this would be only a short-term recession.

He said Thailand has three structural shortcomings that need to be addressed to ensure sustainable growth.

The weaknesses are a heavy reliance on exports and tourism, an ageing population, and the Covid-19 pandemic, with the last factor the catalyst for the country’s rush to adopt digital technologies.

The World Bank’s Thailand Economic Monitor, published in June, suggested Thailand should adopt more of a circular economy approach to help promote growth that is more sustainable and resilient to external shocks.

The circular economy model offers the potential for a more environmentally sustainable and efficient approach to economic production.

Transition towards a circular economy could increase Thailand’s GDP by about 1.2% and create nearly 160,000 additional jobs by 2030, representing 0.3% of total employment, according to the report.

Abundant risks

Kriengkrai Thiennukul agrees with this assessment, as the chairman of the Federation of Thai Industries (FTI) said Thailand is beset by several problems, ranging from the impact of the pandemic to increasing costs of living and high household debt, all of which make the country vulnerable to a significant economic contraction.

“There is a high chance of recession in Thailand, but whether it will cause a severe impact depends on how the government prepares to deal with it,” he said.

“This issue bears close and careful observation.”

Many manufacturers are aware of these economic uncertainties, said Mr Kriengkrai.

He believes many of the 14,000 member companies of the FTI have put in place risk management measures to help them survive another economic crisis, though it would be a tough task for small and medium-sized enterprises (SMEs).

“Risk management is now a part of business operations. Many companies hedge, which is easily adaptable in response to changing economic situations,” said Mr Kriengkrai.

The FTI expects global crude oil prices to decline due to growing worries over the world economy, which will hit petroleum demand.

Economic concerns were heightened following the Fed’s decision to increase the benchmark interest rate by 0.75% in June, the biggest rise since 1994. The Fed is expected to make further increases, pushing the rate above 3% this year.

The move, which is aimed at subduing high US inflation, is likely to land its economy in a recession, said Mr Kriengkrai.

He expects the Bank of Thailand to follow the Fed in seeking to curb soaring inflation by increasing the policy rate.

The Thai central bank’s Monetary Policy Committee (MPC) is expected to raise the rate by 25 basis points at its next meeting in August.

On June 8, the MPC meeting voted 4-3 to maintain the policy rate at its existing level of 0.5%, where it has been since May 2020.

Beware of slowdown

Sisdivachr Cheewarattanaporn, president of the Association of Thai Travel Agents, said travel is normally the first thing people cut in order to save money amid economic downturns.

Some people continue to travel despite recessions in their home countries, he said, but the number of international tourists coming to Thailand might not reach the government’s goal of 10 million, with operators predicting 7 million the most likely outcome for this year.

Mr Sisdivachr said while the US is forecast to plunge into a recession, which would directly affect purchasing power, Thailand can still expect a flow of European tourists who want to flee the harsh winter in the final quarter.

For the short-haul market, Japan is also at risk of recession, while the recent assassination of former prime minister Shinzo Abe might have a short-term impact on the confidence of the Japanese people, he said.

The major obstacle for the Japanese market is prolonged pandemic restrictions, which have blocked the resumption of two-way tourism, said Mr Sisdivachr.

Arrivals from Japan have not yet rebounded, compared with other markets.

He said if the Japanese government relaxed travel rules in the final quarter, pent-up demand from more than two years of pandemic closures would help stimulate the market despite a recession, especially among Japanese businessmen.

“Thailand must focus on every potential market, particularly Southeast Asia, the Middle East and Europe, to compensate for shortfalls from countries that might face heavy recessions during the upcoming high season,” said Mr Sisdivachr.

The fourth quarter is expected to see 60,000-80,000 international arrivals per day, up from 30,000 now, as more countries relax travel rules, he said.

Serious impact unlikely

Sanan Angubolkul, chairman of the Thai Chamber of Commerce, said Thailand is unlikely to take much of a hit from the looming global recession as the country has high food security, with ample capacity to produce food to meet both domestic and export demand.

Thailand also has a strong financial sector, he said.

Mr Sanan said despite uncertain economic prospects, including persistent high inflation caused by an energy crisis and the Russia-Ukraine war, the chamber thinks it unlikely Thailand will fall into recession.

The chamber said the export sector, which is the biggest contributor to Thai growth, is expected to continue its expansion this year, while the tourism industry is recovering following government relaxations of Covid-19 control measures related to travel, nightlife and entertainment businesses.

He said one concern is the government needs to prudently manage the energy sector as it remains heavily reliant on imports for both oil and gas.

“It is inevitable that business operators will be affected by increased production and transport costs, resulting in high inflation and higher product prices,” said Mr Sanan.

“Producers need to increase the prices of their products accordingly to reflect the real costs.”

He urged all related agencies, both in the private and public sectors, to enhance their cooperation to tackle such challenges.

SMEs require more funding support, marketing channels and greater access to export markets, said Mr Sanan.

He called for the government to expedite free-trade agreement negotiations to expand export opportunities, raise Thailand’s trade competitiveness with other countries, and explore new markets such as Turkey, the EU and the Middle East.

“The chamber and the Commerce Ministry have been working together closely and project Thai exports to grow by at least 8%,” said Mr Sanan.

“We hope export growth reaches 10% this year driven by baht weakness.”

Alternative markets needed

Chaichan Chareonsuk, chairman of the Thai National Shippers’ Council, said to offset high export risks induced by a possible recession in certain developed economies, Thai exporters need strategic preparation to accelerate growth in new markets such as the Middle East and India, as well as Cambodia, Laos, Myanmar, and Vietnam to increase border trade.

In the meantime, he said export-oriented manufacturers must come up with plans for energy conservation and energy adjustment.

According to Mr Chaichan, Thai exporters are being advised to hedge against export risks and raise their financial liquidity, as well as prepare for possible debt defaults and global economic uncertainties.

Still, Mr Chaichan said he remains confident Thai exports are in good shape this year as the country is entrenched in global supply chains.

Please follow and like us:
Global news and Local news in Thailand and Pattaya with Business advertising
Translate »