Analysts indicate that consumer spending in Thailand is poised to increase this year, surpassing 2019 levels for the first time, driven by anticipated interest rate cuts from the Bank of Thailand due to a robust baht and growth in the tourism sector.
While high household debt continues to exert pressure on consumer spending, the influx of foreign tourists, crucial to the Thai economy, is expected to provide a boost. According to BMI, a Fitch Solutions company, foreign arrivals are steadily recovering from the pandemic, with a predicted growth of 28.3% year-on-year in 2024. The London-based research firm forecasts Thai GDP to expand by 2.6% in 2024, up from 1.9% last year.
“The increase in tourist arrivals is promising for spending in the tourism sector and associated services, including hotels, restaurants, and cultural and recreational activities,” BMI noted in a research report.
Nonetheless, the high level of household debt poses a risk to the consumer outlook, as it not only limits future borrowing capabilities but also affects current disposable income levels. Additionally, rising debt servicing costs due to increasing interest rates have reached levels not seen in the past decade.
Many central banks are anticipated to begin rate cuts from the last quarter of this year and into 2025.
“Although interest rates are unlikely to return to the historically low levels seen over the past decade, easing monetary policy will alleviate some of the pressure from debt servicing costs,” BMI added.
In Thailand, the central bank is expected to implement adjustments to interest rate policies, influenced by stable inflation and a strong baht, which should support spending levels.
Total spending is projected to exceed the 2019 figure for the first time this year, reaching 9.2 trillion baht, according to BMI.
Household spending is expected to remain steady in 2025, with a real-term increase of 4.0% year-on-year, reaching 9.6 trillion baht, the research firm reported.
Asia Plus Securities (ASPS) also anticipates that the Bank of Thailand will begin reducing rates this year due to the rapid strengthening of the baht. The Thai currency has risen to over 33 baht against the dollar, and Thai bond yields from one to eight years are currently lower than the interest rate of 2.5%, indicating expectations of an interest rate reduction.
ASPS expects the central bank’s Monetary Policy Committee to “cut the interest rate at least once by 0.25% in 2024.” A 25-basis-point reduction is anticipated to boost the Stock Exchange of Thailand index by 60 points, reaching 1,510, according to the brokerage’s forecast.
