SCB sees stagflation for Thailand economy

SCB sees stagflation for Thailand financial system

Struggle, inflation make for fragile restoration

Thailand’s financial system has gone into stagflation due to a fragile restoration and surging worth hikes, says an economist on the Financial Intelligence Middle (EIC), a analysis unit underneath Siam Industrial Financial institution (SCB).

The EIC downgraded its 2022 financial progress forecast for Thailand to 2.7% from 3.2%. The revision was attributed to the Russia-Ukraine conflict, which despatched power and commodity costs hovering.

Thailand’s annual common headline inflation charge is anticipated to leap to a 14-year excessive of 4.9% this yr, rising considerably from a earlier forecast of 1.6%, mentioned Yunyong Thaicharoen, SCB’s chief wholesale banking officer and an economist on the EIC.

Underneath a base-case state of affairs that sees the Ukraine conflict ending within the second half of this yr, the Brent crude oil worth can be at a mean of US$110 per barrel this yr.

If the conflict lasts to the top of this yr, resulting in an power provide shock, the typical oil worth can be $133, mentioned the EIC.

For Thailand, the upper inflation charge will trigger home spending to get well slower than EIC beforehand forecast, mentioned the centre.

Specifically, non-public consumption will probably be adversely affected by a decline in family buying energy on the again of surging gasoline and meals costs, alongside a sluggish rebound in wages, that are at present falling behind rising residing prices.

“Greater prices and falling revenue margins will strain corporations to boost frequent product costs, passing on rising prices to customers. On this state of affairs, lower-income earners can be damage,” Mr Yunyong mentioned.

Given the weak Thai financial rebound amid a number of exterior danger elements, the nation’s restoration to pre-pandemic ranges will probably be delayed to the third quarter of subsequent yr, he mentioned.

Mr Yunyong mentioned the Russia-Ukraine conflict would additionally end in decrease numbers of Russian and European vacationers visiting Thailand, although this is able to partially be offset by Asian and Asean travellers.

The EIC barely decreased its international vacationer arrival projection for this yr to five.7 million from 5.9 million, offering the nation with annual tourism earnings of 300 billion baht.

Though the nation’s headline inflation charge might exceed the Financial institution of Thailand’s goal vary of 1-3% this yr, the EIC expects the central financial institution’s Financial Coverage Committee to take care of the coverage charge at 0.5% all through 2022. It’s because the central financial institution is anticipated to deal with measures to help financial progress.

Based mostly on exterior uncertainties and cash market volatility, the baht is anticipated to depreciate to round 33.5-34 towards the US greenback within the brief time period, in accordance with EIC.

“The baht will rebound barely to 32.5-33.5 towards the buck in late 2022 as a promising tourism restoration will assist enhance the present account steadiness,” mentioned Mr Yunyong.