The picture surrounding China is still uncertain, despite the fact that one-third of the global economy may enter a recession in 2023. The International Monetary Fund (IMF) issued the dire economic projection based on concerns over an economic slowdown in the United States, the EU and China, but some analysts believe 2023 will be a year of recovery for the world’s second-largest economy. Analysts anticipate that Thailand will experience a double-dip recession due to a variety of variables, including a rise in COVID-19 infections in China, Beijing’s monetary policy, and its plan to reopen the nation for cross-border travel.
Recession unlikely
According to Kampon Adireksombat, first senior vice-president of Siam Commercial Bank’s Chief Investment Office (SCB CIO), it is very doubtful that the Chinese economy would enter into a global market recession in 2023.
“The Chinese economy already bottomed out in the second half of 2022 because of their zero-COVID policy. The reopening rules, combined with easing monetary, fiscal and regulatory measures, will likely result in an economic rebound, especially in the first half of 2023. Rising COVID cases after the reopening could force some business activities to halt, but we believe it could be on a temporary basis,” Kampon Adireksombat told the Bangkok Post.
SCB CIO anticipates that China will further relax its monetary policy by lowering the minimum reserve ratio demanded by commercial banks. The People’s Bank of China is also expected to put policies into place that support particular companies, particularly vulnerable ones.
According to Kampon, China’s recent reopening for international travel and softening of monetary policies are important positive factors for both its domestic economy and other nations with substantial exposure to trade, investment, and tourism.
“In 2023, we believe China reopening for domestic and international travel is the most important easing measure that will likely benefit the Thai economy,” he said.
The tourism sector in Thailand and allied industries will benefit from the return of Chinese visitors. According to Kampon, the recovery in the tourism sector should also assist domestic demand because it is a labour-intensive industry. As a result of China’s recent reopening news, Kasikorn Research upped its projection for Thai GDP growth for 2023 from 3.2% to 3.7%, noting that this will be good for Thailand’s export and tourism industries.
“We believe China’s plans to expand businesses abroad will be the second priority for the government and firms, as they may want to stimulate domestic investment to shore up their own economy first,” Kampon said.
Currency concern
According to Sanan Angubolkul, chairman of the Thai Chamber of Commerce, the expected slow development in China won’t likely have a detrimental impact on Thailand’s performance in international trade. He said that China’s initiatives to relax strict zero-COVID regulations will hasten the country’s economic recovery, with the growth of 5% likely starting in the second quarter of 2023.
“Our greatest concern is the frenetic volatility of the foreign exchange rate, especially for the baht, which is strengthening more than other regional currencies. Thai entrepreneurs have to prudently plan and manage foreign exchange risks to curb the impact on their businesses and trade,” Sanan said.
He anticipated that due to the weakening economy of Thailand’s major trading partners, exports will decline in the first two quarters of 2023. According to Sanan, the third and fourth quarters should see an improvement in exports. Also, the Joint Standing Committee on Commerce, Industry and Banking estimates that Thai exports would eke out growth of 1-2%.
Poonpong Naiyanapakorn, director-general of the Trade Policy and Strategy Office (TPSO), stated that despite expectations for slow growth in China’s economy due to zero-COVID policies and a struggling real estate market, the office is still optimistic about the country’s export prospects.
According to a recent analysis by TPSO, the Chinese reopening is anticipated to help Thai exports to China, particularly those of fruit, food, beverages, and clothing. He added that shipments of medical and healthcare products had potential futures. Data from the Commerce Ministry show that in the first eleven months of the year 2022, Thailand’s exports to China decreased by 6.5%, with fruit, plastic pellets, computers and computer components, chemicals, and rubber being the main exports.
Moderate impact
According to J.P. Morgan’s research team, COVID infections in China will peak in January 2023, but the country’s economic recovery won’t begin until the second quarter.
“Even though COVID-19 infections in China rose rapidly after the country reopened faster than expected, we expect the impact to be transitory. In fact, these early infections that will likely peak in January are expected to bring forward the timing of China’s economic recovery to the second quarter,” J.P. Morgan’s research team told the Bangkok Post in a statement.
The team predicts that the recovery will increase consumer demand for tech products like smartphones, which will strengthen trade flows between China and Thailand for tech-related components. According to Vinayaka Venkatesh, senior market analyst for Asia-Pacific at tech market research firm IDC, a rise in infections in China and the possibility of an economic slowdown are expected to curb the supply of tech products, as the majority of countries in the region rely on China. He claimed that increasing loan rates and rising consumer product prices have hurt the Thai economy, which has reduced demand for computer products.
“We expect a slowdown in demand as local and global macroeconomic conditions hurt consumer sentiment and buying power. It doesn’t help that supply of lower-cost smartphones has shrunk significantly,” Venkatesh said.
No concerns over spending
According to Sisdivachr Cheewarattanaporn, head of the Association of Thai Travel Agents, the first quarter would see significant expenditure by Chinese tourists to Thailand, with little influence from the anticipated economic slowdown. As wealthy visitors who have waited three years to travel overseas, Sisdivachr said he believes the Chinese still have trust in visiting Thailand and they may even spend more during the first quarter than they did before the pandemic. Independent travellers, working persons under 40 years old, and the wealthy will make up the bulk of the travel market in China’s early phases of openness, he predicted.
Operators should prepare by offering excellent services, such as attractions, tour guides, bus operators, and boat charters, to draw Chinese tourists.
“This time is different than the global financial crisis in 2008-2009, when there were not many Chinese tourists,” Cheewarattanaporn said.
The Tourism and Sports Ministry reported that only 815,708 visitors from China arrived in 2009. In the second quarter of 2023, Sisdivachr predicted that the Chinese government will let tour groups resume travel. In order to prepare for the restoration of tour group services in the future, he said, Chinese travel agents are currently inspecting attractions and other services in Thailand.
According to Sisdivachr, when Beijing finally drops the necessity for the RT-PCR- COVID test, the Chinese market might expand significantly, while airfares would gradually go down. He predicted that tour operators will make even more money from Chinese vacation packages than they had in the years before COVID.
The Tourism Authority of Thailand’s governor, Yuthasak Supasorn, claimed that the Thai tourism sector has some advantages that should keep demand high even if it is predicted that one-third of the global economy will experience a recession. For instance, he noted that high energy costs in Europe would lead some travellers to look for extended-stay locations outside of Europe. According to Yuthasak, the tourist sector needs to refocus on nations that are anticipated to be less impacted by the economic slowdown in order to minimize these risks.
Tougher competition
As economies continue to contract, the Federation of Thai Industries (FTI) is concerned about competitiveness in the international market. A recession in the global economy has reduced the demand for goods and services in many nations. According to Kriengkrai Thiennukul, chairman of the FTI, supply now outpaces demand on the international market. He stated that if China increases its exports, competition will heat up and other countries’ concerns over slow global commerce will grow.
Kriengkrai said, “After reopening, China will return to competing with other countries. Exporting countries, including Thailand, will face risk because we believe China will increase manufacturing for exports to make up for losses from when the country was closed.”
According to Kriengkrai, when China implemented tight zero-COVID regulations, it provided a chance for other countries to boost manufacturing and export goods. He said this circumstance will change as China ramps up attempts to revive its economy because a slowdown in China’s economy could have an impact on the global economic recovery.
The IMF’s forecast that the Chinese economy may expand at or below the average rate of world growth for the first time in 40 years is cause for concern. The growth prediction for the Chinese economy from J.P. Morgan experts has increased from 4.7 to 5.4% for 2023, Kriengkrai said.