Thailand consumer outlook hopeful

We maintain a positive outlook for consumer spending in Thailand throughout 2024, as growth continues in sectors such as retail, hospitality, tourism and gastronomy.
Real household spending (calculated at 2010 prices) is projected to grow by 3.6% year-on-year, decelerating from the 11.2% estimated for 2023 as consumer spending stabilises from the volatility witnessed from 2020-23, induced by Covid lockdowns and a subsequent remarkable recovery. In total, we anticipate spending to exceed 9.2 trillion baht (in 2010 terms) in 2024, supported by a favourable macroeconomic environment.
Given the Bank of Thailand’s prospective policy to ease interest rates in 2024, in response to controlled inflationary pressures and a robust outlook for the baht, we expect spending levels to remain supported for the year.
Total spending in 2024 will also exceed pre-pandemic levels for the first time, suggesting that 2024 will remain crucial for the market’s medium-term recovery outlook.
Over 2025, household spending will hold steady, growing 4% year-on-year in real terms to a value of 9.6 trillion baht (at 2010 prices).
In July 2024, the consumer confidence index for Thailand was 57.7, the lowest reading since August 2023. It was also the fifth consecutive month of weakening consumer confidence as uncertainty about Thailand’s economic and political stability mounted.
Retail sales growth eased to 12.6% year-on-year, the third consecutive month of easing growth, echoing the fall in consumer confidence. If political and economic troubles remain sticky, a more sedate outlook is expected over the second half of 2024.
We will continue to watch both parameters closely and adjust our forecast accordingly.
The forecast for real growth in consumer spending for Thailand in 2024 is in line with our Country Risk team’s forecast that strong macroeconomic indicators will support the economy’s real GDP growth forecast of 2.6% year-on-year over 2026, an improvement from 1.9% in 2023.
International tourism, which plays a large part in the Thai economy, continues to recover from the Covid-related downturn, and we expect a 28.3% year-on-year increase in tourist arrivals to Thailand in 2024.
The surge in arrivals will bode well for spending on related services, such as hotels, restaurants and cultural and recreational activities and establishments.
We project the unemployment rate to be stable over the year, at 1.1% of the labour force, supporting consumer confidence. Inflation will continue to moderate to an average of 0.8% over the year, further preserving consumer purchasing power.
Over 2024, we expect the baht to depreciate modestly against the US dollar to 36 in 2024, from 34.80 in 2023. The modest fluctuation should not have an impact on import affordability.
Inflation Outlook
Consumer price inflation eased considerably from the fourth quarter of 2023 to the first quarter of 2024 as deflation based on cooling food and fuel prices resulted in negative pricing pressures. Since then, prices increased only modestly from April to July 2024.
Prices rose by only 0.35% in August 2024, the fifth consecutive month of increase after many months of contraction, driven primarily by accelerated prices for food.
Our Country Risk team forecasts inflation will average 0.8% year-on-year in 2024 and 1.2% in 2025. The risk is that inflation rises and remains elevated at those levels for longer than anticipated, which will accelerate the erosion of household purchasing power.
If inflation eases further into deflation, prolonged periods of deflation may lead to further demand erosion, dimming the consumer spending outlook.
Employment Outlook
Although inflation has eroded real income gains, the strong Thai labour market remains a principal driver behind consumer spending growth over 2024. However, as major markets and economies decelerate in 2024, we anticipate a general rise in unemployment rates heading into 2025.
Diminished levels of personal savings, which previously served as a cushion to uphold consumption patterns, will necessitate that households reorient their purchasing behaviours and reduce their expenditure — either by shifting to lower price points, or by acquiring fewer goods at similar spending levels.
As a consequence, rising unemployment is a key risk to our consumer outlook for the remainder of 2024 and into 2025.
In Thailand, the unemployment rate has recovered from its peak of 2.2% in the third quarter of 2021, reaching 1% as of the first quarter of 2024. This is the lowest unemployment figure since the fourth quarter of 2015.
The average unemployment rate for 2024 is estimated at 1.1% of the labour force, on par with the pre-Covid average of around 1.1% from 2017-2019.
Household Debt Outlook
A high level of household debt remains a risk, as it not only constrains future borrowing capacity but impacts current disposable income levels.
In many markets, central banks rapidly hiked interest rates during the 2022-23 high-inflation period, reaching levels to which most households were not accustomed over the past decade.
Most markets have now reached terminal interest rates, with many central banks loosening rates over the second half of 2024 and into 2025.
While interest rates will not reach the previous historical lows of the last decade, easing monetary policy will alleviate some debt servicing cost pressures.
Over the course of the pandemic, household debt as a percentage of GDP in Thailand increased significantly. While household debt averaged 69.2% of GDP between 2015 and 2019, reaching a low of 68.2% in the second quarter of 2018, it surged to a peak of 96.6% by the first quarter of 2021.
Although the latest available data indicate that household debt accounted for a reduced 92.3% of GDP in the fourth quarter of 2023, this figure is still higher than the pre-pandemic average.
As a percentage of GDP, Thai households now have the highest debt rates in the region and the 11th-highest in the world.
This is a structural problem for the economy, and the government has targeted reducing the level of household debt from 2023 to ensure that private consumption does not stagnate.
The high level of indebtedness of Thai households poses a key risk to our consumer spending outlook, particularly as we expect interest rates in the country to continue rising.
Higher interest rates will require households to allocate a larger proportion of their disposable income to servicing their debts, which will weigh on consumer spending.
This commentary by BMI, a Fitch Solutions company, is not a comment on Fitch Ratings’ credit ratings. Fitch Ratings analysts do not share data or information with Fitch Solutions Macro Research.