Thailand GDP: Government spending lifts growth

Facts

• Well above market expectation (HSBC: 2.7%, BBG: 2.4%), GDP in 3Q 2024 accelerated to 3.0% y-o-y from 2.2% y-o-y in the previous quarter. On a seasonally adjusted basis, this represents a 1.2% q-o-q increase.
• Year-to-date, GDP rose 2.3% y-o-y.
• Statistics authorities revised the 2Q 2024 growth downwards to 2.2% y-o-y (prev. 2.3%).
• The National Economic and Social Development Council (NESDC) expects full-year 2025 growth to range from 2.3% to 3.3%.

Implications

Growth surprised to the upside, many thanks to a punchy rise in public spending, both in consumption and investment. This was a result of a massive catch-up in government spending. With no budget legislated during the first half of fiscal year 2024, the government backloaded most of its spending in the last quarter of the fiscal year (which is 3Q 2024), leading to government investment rising 25.9% y-o-y.

Private consumption also accelerated in the 3rd quarter, but we don't think this represented the impact of the 1st phase of the digital wallet scheme just yet. The cash was doled out to 14.5 million recipients during the last week of September (Bangkok Post, 25 September 2024). Though some might have immediately spent the cash given, the impact of the hand-out should be more evident in 4Q 2024. That said, we expect growth in 4Q 2024 to accelerate further to 3.7% y-o-y.

All this means is that the Bank of Thailand (BoT) now has more room to keep its policy rate unchanged at 2.25% during the December rate-setting meeting. And this additional room is more than just growth being strong.

The 2025 budget was passed on time and is expansionary. It includes the remaining phases of the Digital Wallet Scheme so we expect the fiscal deficit in fiscal year 2025 to be 4.6% of GDP. Not only will this help support growth, but it will also make it less likely for the BoT to cut its policy rate since a simultaneous easing of monetary and fiscal policy risks increasing household debt.

Related to the point above, policy uncertainty over the government's fiscal stimulus has largely abated, helping firms plan ahead and resume their investments, thus, bolstering growth.

The THB has weakened against the USD, allaying concerns over export competitiveness. Remember that THB weakness led to calls for a policy rate cut back in October (Surprise but hawkish cut, 16 October 2024)

With the fiscal engines revving, we think attention will return to tourism. Thailand's tourism recovery underperformed in 3Q 2024 with the recovery of mainland Chinese tourists declining . This may be the reason why the NESDC lowered its tourist arrival forecast for 2024 to 36 million (prev. 36.5 million). Any further decline will be a headwind to Thailand's growth outlook and risks renewing calls for further monetary easing.