Thailand: Recovery play comes with caveats

Its economic outlook remains in the doldrums due to domestic headwinds and international strife


ENTERING into the second quarter of 2023 (2Q23), we think that Thailand’s economic outlook remains in the doldrums due to domestic headwinds and international strife given that the recession signals for some major economies are flashing bright red.

Global Slowdown Is Affecting Thai Economy Thailand’s economic outlook is likely to be dampened as recession signals of some major economies are flashing bright red. This is because Thailand still relies heavily on international trade with other countries for its economic growth, with the US being their largest trading partner. The US GDP expanded by 2.9% year-on-year in 4Q22, slightly better than expected but consumer spending weakened.

Global growth is expected to deteriorate further as a result of tighter monetary policy, leading to a possible recession. The slowdown in global economic activity is already taking a toll on Thailand’s economy, with the country’s exports declined for five consecutive months in a row as of February 2023.

Tourism Recovery May Face Headwinds

Ever since the reopening of Thailand’s international border, there has been huge influx of tourist arrivals which benefitted the tourist dependent country. In addition, the reopening of China’s international border provided another lift towards Thailand’s recovery play, as China has been one of the major sources of tourists for Thailand.

However, we think that the recovery of the tourism sector may face some headwinds. Firstly, the reopening play in China is taking longer than expected, as the data showed that Chinese household has been racking up their savings even after the reopening of international border, which showed that they were reluctant to spent due to weaker consumer sentiment in the Chinese economy, along with a slump in the massive real estate sector. As such, the amount of Chinese tourist visiting Thailand has not seen a huge spike as what some analyst expected, as figure showed a slow recovery in Chinese tourist arrivals in the past few months. Moving forward, as recessionary fears continue to loom, coupled with the slowdown in major economies, this would dampen Thailand’s tourism sector which is deemed as a discretionary spending.

In addition, in terms of seasonality, Thailand welcomes lesser tourist in the 2Q of each year compared to 1Q and 4Q. This is because of the summer season where weather can be extremely hot and humid as well as non-school holidays, which will not provide as much support for the Thai economy.

Therefore, we believe that such headwinds may slow down the recovery play for Thailand, resulting the Thai economy to take longer than expected to return to pre-pandemic levels.

Besides, countries in South-East Asia are facing the worst heat wave in April in the history of Asia, whose effects extend to more than ten Asian countries. Thailand is one of the victims and has just recorded one of the highest temperatures in its history of 45.4°C in mid-April, breaking the highest temperature ever recorded in the shade in 2016. It is expected that such heat waves could last for months, and the issue of smog has made things worse, which has caused thousands of people to develop respiratory problems and sore throats in recent weeks.

As such, these might affect international tourists’ decisions when they decide their vacation destination.

Rising Uncertainty in Sight of Election

A month ago, Thailand’s king dissolved Parliament, paving the way for a general election yesterday.

In contemporary Thai politics since the 1990s, this would be the most consequential election. The prospects of a democratic winner either standing up to the promilitary order, or working with it, will determine the political and economic trajectory of South-East Asia’s second largest economy.

Parties led and backed by Thaksin Shinawatra have won the most seats in every election since 2001, but have been fiercely opposed by the conservatives, who have undermined several governments headed by Thaksin and his allies by utilising legal rulings by the judiciary and military coups in 2006 and 2014.

Given that we are not here to predict the outcome of Thailand’s election, we are of the view that volatility and uncertainty are likely to remain at least throughout May which would not bode well with investors sentiment.

Increasing Uncertainty for Thai Equities

We remain our ‘Neutral’ stance on Thai equities as their economic outlook looks increasingly uncertain than most anticipate it to be, as exports and tourism may not be able to live up to expectations as the global economy goes into a tailspin.

In terms of earnings expectations, the SET Index’s earnings growth has increased to 10.48% in 2023 and 11.03% in 2024. Meanwhile, the SET Index is trading at a forward price to earnings (PE) of 13.13 times based on the 2025 earnings, which is below the fair P/E of 15 times of the market. This translated into an upside potential of 14.42% which is less attractive compared to other markets. Given the barely satisfactory upside potential, we maintain our 2.5 stars ‘Neutral’ Star Rating on the market. – pic Bloomberg

  • The views expressed are of the research team and do not necessarily reflect the stand of the newspaper’s editorial board.

  • This article first appeared in The Malaysian Reserve weekly print edition