BANGKOK -- Thailand's economy in the third quarter marked the sharpest growth under the military regime, buoyed by external factors, but analysts said that for sustainable expansion, domestic consumption and private investment must increase.
The better-than-expected 4.3% growth in the July-September quarter gave a boost to blue-chip stocks, strengthened the baht and led the government think tank to revise up its economic outlook for this year to 3.9%, from 3.5-4% previously. Securities house Nomura also raised its 2017 outlook to 3.9% from 3.6%. But generally, analysts were not overly excited given that the expansion was largely driven by external growth such as robust exports and record-high tourist arrivals.
"To gain a full economic recovery, the domestic factors need to pick up," said Motoko Miyano, senior vice president of treasury at Sumitomo Mitsui Bank's Bangkok branch. The Thai baht hit a 2.5 year high against the greenback on Monday but Miyano noted that its move was part of a recent trend of Asian currencies gaining against a weakening dollar. The Malaysian ringgit also climbed to its highest in more than a year on Monday following strong economic data.
A report from Nomura on Monday said that while strong exports and tourism are expected to support Thailand's economy in the fourth quarter and 2018, the "domestic picture will remain subdued." It cited "structural constraints" such as high household debt, excess capacity in the manufacturing sector and an ageing population.
In the July-September figures, Thailand exports jumped 12.5% year-on-year with shipments to major markets such as U.S., China and Japan increasing in double digits. "Thanks to a better world economy, our exports are improving," Porametee Vimolsiri, secretary general of the National Economic Social Development Board, told reporters on Monday. "The growth engine of Thailand's economy is at its best condition in the past few years." The NESDB forecast that gross domestic product will grow 3.6-4.6% in 2018.
Exports are a vital part of the Thai economy accounting for around 60% of overall GDP. The latest monthly export figures released on Wednesday showed an expansion of 13% on the year in October, underlining strong recovery. The NESDB projects that exports of goods will expand 8.6% in 2017 and 5% in 2018 compared with 0.1% in 2016.
Exporters are hiking production in line with demand, but not yet to the extent of adding more capacity. Private investment growth slowed down to 2.9% from 3.2% the previous quarter.
The NESDB said that the trickledown effect from export recovery would become more broad-based in 2018 and that excess inventories would be cleared. Capacity utilization rate in the manufacturing sector showed promising signs in the third quarter coming in at 62%, ticking up modestly from 59% in the previous quarter.
Private investment is expected to expand by 3.7% in 2018, according to the NESDB, compared with a full-year projection of 2.2% for this year and 0.4% recorded last year.
What is more worrying on the domestic front is the slow recovery of private consumption, said Phacharaphot Nuntramas, head of economic and financial market research at Siam Commercial Bank's Economic Intelligence Center.
"We doubt private consumption could grow as strongly and equally [as private investment] because the agricultural prices are expected to remain low while labor market conditions [such as employment rates] have deteriorated," Krasae said. "The consumption in 2018 needs to rely on high-income earners like it did in 2017."
According to the latest statistics from the central bank, household debt accounted for 78.4% of GDP in the second quarter. Although declining -- the ratio fell below 80% for the first time since the first quarter of 2015 -- the high level of debt is weighing on domestic purchasing power.
Desperate to open up consumers' wallets, the military government has again introduced a large-scale shopping tax break for the year-end. The end of the year-long mourning period for the late King Bhumibol Adulyadej is also expected to boost consumption. Still, the NESDB expects private consumption will pick up by just 3.1% in 2018, a slowdown from the projected 3.2% growth in 2017.
Looking on, external factors are expected to remain as the main drivers for Thailand's economic growth.
Adding to exports, the country's tourism is continuing to expand. Tourism receipts increased by 9.5% to 693.4 billion baht, with 65% coming from foreign tourists, lifting sectors such as hotels, restaurants and transportation.
Tourist arrivals in October remained positive, jumping 21% year-on-year sending up tourism-related stocks such as Airports of Thailand. Central Plaza Hotel hit an all-time high.
The largest contributors were the Chinese tourists. Thailand regained its No.1 spot on the list of places that Chinese tourists traveled to during this year's golden week holidays in October, replacing South Korea, according to a survey by online travel agency Ctrip.
Chinese tourists to Thailand declined after the Thai government conducted a wide-scale crackdown on illegal Chinese tour operators last August. But visitors have been picking up since the beginning of this year. Moreover, South Korea's relationship with China has soured after it allowed the deployment of a U.S. advanced missile defense system on its soil despite China's objection.
One concern that analysts point out is political uncertainty, which could drive tourists away. General elections are scheduled to be held by November 2018 and political activities, which are banned under the military government, are expected to resume.