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Thailand Dealing with Growing Global Headwinds
Thailand’s economic recovery may be hindered by a global slowdown, and the government’s economic stimulus policies could lead to higher government debt, according to Fitch Ratings analysts.
Key Takeaways
- Thailand’s economic recovery may be hindered by a global slowdown and the new coalition government’s stimulus policies could lead to higher government debt.
- Thai banks are expected to have some ratings headroom due to improving financial performance and potential government or shareholder support.
- The mid-year sector outlook for banking systems in developed economies, such as the US, UK, Germany, and Australia, is biased towards the downside, while emerging-market banking systems, including Thailand, have a more benign outlook despite challenging conditions in some major markets.
The US is expected to experience a mild recession, while Europe will see below-trend growth due to persistent inflation. China’s growth is slowing due to a severe downturn in the property sector. Thailand is also affected by the weaker global backdrop, with declining merchandise exports and below-pre-pandemic levels of tourist arrivals.
The recently formed multi-party coalition government may lead to consensus-led policymaking, but differing views within the coalition could delay the budget. Thai banks are expected to have some ratings headroom, but the outlook for banking systems in developed economies is leaning towards the downside.
Despite challenges, Fitch sees a more favorable outlook for emerging-market banking systems. In Thailand, the rating outlook for all banks is stable, and the environment is expected to support profitable growth and capital generation.
Thailand’s banks have a stable outlook, with the largest private commercial banks having a ‘BBB’ Issuer Default Rating with Stable Outlooks. This is due to their Viability Ratings, which are at the same level as their Government Support Ratings. Fitch anticipates that the next two years will be more favorable for banks to grow profitably and generate capital, despite potential risks from restructured loans. However, major banks are seeking growth opportunities both domestically and internationally in non-bank segments.
As the global slowdown continues to cast a shadow over Thailand’s economic recovery, analysts from Fitch Ratings highlight the potential challenges that lie ahead. The government’s economic stimulus policies, though aimed at revitalizing the economy, could also contribute to a rise in government debt.
While some positive developments can be observed within the banking sector, such as improving financial performance and possible government or shareholder support, the overall sector outlook remains uncertain. Developed economies, including the US, UK, Germany, and Australia, face a biased downside risk in their mid-year sector outlook for banking systems. On the other hand, emerging-market banking systems, including Thailand’s, present a more favorable outlook despite the challenging conditions in some major markets.
The repercussions of the global backdrop are also evident in Thailand’s economy. Declining merchandise exports and tourism numbers, which have yet to fully recover to pre-pandemic levels, are dampening the country’s growth prospects. Furthermore, the newly formed multi-party coalition government, while potentially fostering consensus-led policymaking, may face hurdles due to differing views within the coalition, potentially delaying the budgetary process.
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