Fitch affirms Thailand’s BBB+ rating, forecasts GDP and tourism growth

Having earned a reputation for shrewd financial forecasting, Fitch Ratings has given Thailand‘s long-term foreign-currency issuer default rating (IDR) a rating affirmation of BBB+ and a stable outlook. The judgement is largely influenced by a balance between the firm’s macroeconomic policy framework and sound external finances, gauged against some structural weaknesses like the lower per capita income and lower World Bank governance scores, as against other ‘BBB’ rated peers.

The political uncertainty casting a shadow on Thailand’s credit profile might experience some relief as soon as the enactment of a new prime minister is settled upon in parliament. Despite this, the country’s medium-term growth and fiscal consolidation plans still face possible threats due to demographic crunches.

Predictions are swirling that Thailand may see a significant pickup in real GDP growth, from 2.6 percent in 2022 to 3.7 percent in 2023 and 3.8 percent in 2024. An expected recovery of the tourism sector, together with a revival in domestic consumption and a steady recovery of the labour market, is supposed to bolster the country’s economic prospects.

International tourist arrivals in Thailand are anticipated to increase to about 29 million in 2023, nearly three-quarters of their pre-crisis level, from 11.2 million in 2022. This optimistic projection of the tourism recovery outlook rides on the back of China’s quick reopening.

However, an effective policy implementation might face some hurdles in case the new government formation process stretches for several months. That notwithstanding, such a scenario is not expected to cause any major shifts in the government’s principal strategy aimed at economic development.

Fitch forecasts indicate an interesting swing towards a current account surplus, reversing the average deficit of 2.8 percent for the past two years. The reversal is credited to a likely improvement in tourism receipts and falling oil prices easing off a terms-of-trade shock.

Thailand’s net external creditor position is projected to be maintained at 42.6 percent of GDP in 2023, considerably above the anticipated median levels for ‘BBB’ (-2.2 percent) and ‘A’ (4.8 percent) rated peers. The country is also expected to continue boosting its foreign-currency reserves with a steady influx of tourism recovery.

Various factors such as falling cost-push factors, a mild wage-price spiral, and favourable base effects will potentially average the country’s headline inflation to 2.0 percent in 2023. A considerable decrease from 6.1 percent in 2022, and within the Bank of Thailand’s target range of 1-3 percent.

Thailand’s household debt-to-GDP ratio took a dip to 90.6 percent in the first quarter of 2023 from a peak of 95.5 percent in the first quarter of 2021. However, compared with regional peers, this ratio remains high. Although financial-sector vulnerability represents a source of deterioration in the debt serviceability of highly indebted households and businesses, the banking sector’s resilience to such asset-quality challenges is promising. The banks are likely to continue maintaining solid buffers against downside risks, which contributes to the sector’s neutral outlook.

Indeed, Fitch’s projection has been a beacon for outlining Thailand’s economic prospects. It’s clear that the country’s strong external finances coupled with ongoing economic recovery efforts are vital factors helping to manoeuvre the nation through these uncertain times. Above all, the stable rating affirmation given by Fitch Ratings signifies a beacon of hope that will undoubtedly aid in driving optimistic investor sentiment, reports Bangkok Post.