The Bank of Thailand's expected interest rate cuts, prompted by the strong baht, and growth in the tourism sector will both increase the country's consumer spending, which is expected to exceed the 2019 level for the first time this year, say analysts.
While consumer spending remains pressured by high household debt, it should be buoyed by foreign tourist arrivals, which play a large role in the Thai economy, according to BMI, a Fitch Solutions company.
Foreign arrivals continue to recover from the pandemic, with BMI predicting a 28.3% year-on-year uptick in 2024. The London-based research firm anticipates Thai GDP expansion of 2.6% in 2024, up from 1.9% last year.
"The surge in arrivals bodes well for spending in the tourism sector and on related services, such as hotels, restaurants and cultural and recreational activities and establishments," BMI said in a research note.
However, a high level of household debt remains a risk to the consumer outlook, as it "not only constrains future borrowing capacity, but also impacts current disposable income levels", noted the firm. Debt servicing costs have risen as interest rates increased, reaching levels not seen over the past decade.
Many central banks are expected to start loosening rates from this year's fourth quarter 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," noted BMI.
In Thailand, the central bank is expected to ease interest rate policy in response to controlled inflationary pressures and a robust baht outlook, providing support to spending levels.
Total spending will exceed the 2019 tally for the first time this year, reaching 9.2 trillion baht, according to BMI.
Household spending will hold steady in 2025, rising 4.0% year-on-year in real terms to 9.6 trillion baht, noted the research firm.
Asia Plus Securities (ASPS) also expects the Bank of Thailand to start trimming rates this year as the baht has been strengthening rapidly.
The Thai currency has risen to more than 33 baht to the dollar, while Thai bond yields from one year to eight years are now lower than the interest rate of 2.5%, reflecting expectations of an interest rate cut, said the brokerage.
The central bank's Monetary Policy Committee is expected to "cut the interest rate at least once by 0.25% in 2024", ASPS said.
A 25-basis-point cut is expected to lift the Stock Exchange of Thailand index by 60 points to 1,510, said the brokerage.
