• Slowest growth in three months
• Collection grew 9.1% y/y in Apr-Dec period

India's gross GST collections for December reached INR 1.77tn, up 7.3% y/y, marking the tenth straight month above INR 1.7tn, according to Finance Ministry data. However, year-on-year growth slowed to a three-month low.

For April-December, total collections stood at INR 16.33tn, rising 9.1% annually but falling short of the 11% growth projected earlier. Domestic GST revenues grew by 10.1%, while import collections increased by 6% during the same period. In December, net collections were INR 1.54tn, with refunds surging 45.3% to INR 224.9bn.

Experts suggest rationalizing GST rates to boost consumption, with the GST Council likely to discuss rate revisions for around 150 items. Proposed hikes on products like garments, watches, and aerated drinks could generate an additional INR 220bn annually. Higher GST refunds for exports indicate growing global demand for Indian goods, reducing reliance on imports.

• Schemes extended until FY26
• Additional fund of INR 82.5bn established to enhance scheme implementation

The cabinet has extended two flagship crop insurance schemes - the Pradhan Mantri Fasal Bima Yojana (PMFBY) and the Restructured Weather Based Crop Insurance Scheme (RWBCIS) - until 2025-26, aligning them with the 15th Finance Commission's timeline.

The combined budget for these schemes has been raised to INR 695.15bn for the period from FY22 to FY26, compared to INR 665.5bn for FY21 to FY25.

In a significant development, the cabinet also approved a dedicated INR 82.47bn fund for Innovation and Technology (FIAT) to enhance the implementation of these schemes through technological advancements. According to Information and Broadcasting Minister Ashwini Vaishnaw, FIAT will enable faster crop damage assessments, quicker claim settlements, and fewer disputes. It will also promote digital technologies for simplified enrolment processes and broader coverage.

The Ministry of Agriculture announced that the fund would support technology-driven initiatives and R&D projects. Agriculture Minister Shivraj Singh Chouhan emphasized that insurers under PMFBY would face a 12% penalty for delays in claim settlements beyond the stipulated timeline.

Since PMFBY's inception in 2016, INR 1.7tn in insurance claims have been disbursed to farmers against a premium collection of INR 340bn. Currently implemented in 23 states and Union Territories, PMFBY offers comprehensive risk coverage from pre-sowing to post-harvest stages at highly subsidized premium rates: 1.5% of the sum insured for rabi crops, 2% for kharif crops, and 5% for cash crops. The remaining premium is jointly borne by the Centre and states, with a 9:1 cost-sharing ratio for North-Eastern states.

In FY24, the scheme achieved record enrolment exceeding 4mn farmers. The Finance Ministry has earmarked INR 150bn for PMFBY in FY25, with the revised estimate for FY24 at INR 146bn. The scheme, implemented by 20 public and private insurance companies, ranks as the third-largest globally in terms of premiums.

Govt extends 2 crop insurance schemes till 2025-26; creates INR 84.7bn fund for tech infusion (Economic Times)

GST collection rises 7.3 pc to Rs 1.77 trillion in December (Economic Times)

India aims to double exports of organic products to over $1 billion by FY25-26 (CNBC TV18)

India can use retaliatory measures in case of trade war with US: Think tank (Business Standard)

IMD says 2024 warmest year in India since 1901 (www.m.economictimes.com)

GST collection growth slows in December show (Economic Times)

Cabinet extends 2 crop insurance schemes by a year (Financial Express)

Wheat-silos capacity to triple in 3 years (Financial Express)

Anti-dumping duty recommended on plastic input from China (Financial Express)

• Index returns above 50.0 breakeven point for the first time since Jun 2024
• New orders, output both increase

The Manufacturing PMI rose to 51.2 in December, up from 49.6 in November, according to S&P Global's survey. The Manufacturing PMI suggested growth in the sector for the first time since Jun 2024, ending a five-month contractionary trend. Both new orders and output increased during the month.

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In more detail, new orders rose for the first time in six months, driven up by both domestic and foreign demand. External orders increased for the first time in 11 months, after being a major drag on production in 2024. In addition, output rose at a slightly faster pace than in November, to match the growing demand.

As a result, manufacturers raised employment for the first time in three months. Purchasing activity also increased as manufacturers built up input inventories. On the price front, input-cost inflation sustained pace, boosted by the USD appreciation against the rupiah, which led to manufacturers raising output prices at the highest pace since Aug 2024.

• Food prices pick up, but transport prices return to contraction
• Food, personal care and restaurants are the main inflationary factors
• We expect CPI inflation to start picking up slowly in H1 2025

CPI inflation inched up to 1.57% y/y in December, up from 1.55% y/y in November, according to BPS data. The inflation rate thus shows the first signs of bottoming in the recent 9-month downward trend.

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Data breakdown shows that food inflation picked up slightly for the first time since Mar 2024. However, its contribution was offset by transport prices, which returned to a slight contraction, as well as personal care prices, whose growth slowed for the first time since Jan 2024. All other dynamics were rather muted during the month.

In annual terms, food prices remain the main inflationary factory, accounting for about 0.6pps of the CPI inflation rate, followed by personal care items and restaurant prices. Only transport and information prices exerted some disinflationary pressure.

Looking forward, we expect CPI inflation to start gaining ground slowly, approaching the midpoint of the BI's 2.5+/-1% target band, possibly towards mid-2025.

Sri Mulyani Issues 12 % VAT Regulations, Here's the Details (Tempo)

Malaysian Company Will Invest in [new capital] IKN, Basuki Hadimuljono Claims (Tempo)

JCI Rises on 2025 Opening Day, VAT Policy Eases Investor Concerns (Jakarta Globe)

Government Races to Finalize Crypto Oversight Transfer to OJK Ahead of Deadline (Jakarta Globe)

Prabowo approves six-month rice aid program starting January (Antara News)

OJK: Indonesian Stock Market Contribution to GDP Still Below ASEAN Countries (Kompas)

Sri Mulyani Predicts Indonesian Economy in 2025 Will Still Be Gloomy (CNBC Indonesia)

• Proposal approved by Malaysian PM Ibrahim
• Pakistan's rice exports rose sharply following India's ban on shipments in July 2023

Malaysia is considering importing white rice from Pakistan to boost local supplies and contain prices, Malaysian media reported. The proposal has been approved by Malaysian PM Anwar Ibrahim but has yet to be finalized. This comes after the premier in October 2024 visited Pakistan, where he pledged to increase rice and meat imports from the South Asian nation. According to Malaysia's National Action Council on Cost of Living chairman Syed Abu Hussin Hafiz Syed Abdul Faisal, who accompanied Ibrahim to Pakistan, some 28 Pakistani exporters had expressed readiness to supply additional 100,000 tons of rice to Malaysia.

Pakistan's rice exports have risen sharply since July 2023 when neighbouring India banned shipments of non-basmati white rice to maintain domestic prices. According to Pakistan Bureau of Statistics data, the country exported 6mn tons of rice worth USD 3.9bn in FY24 (ended June 30, 2024), up by 61.9% y/y in quantity terms and 82.9% y/y in value terms. Although India withdrew the ban in Sep 2024, it has yet to affect shipments from Pakistan. During Jul-Nov FY25, rice exports were up 38.1% y/y to 2.4mn tons.

• Imports soared while exports rose marginally
• During Jul-Dec FY25, goods trade deficit was up 0.2% y/y

The merchandise trade deficit rose to an eight-month high of USD 2.4bn in December, up by 34.8% y/y, according to Pakistan Bureau of Statistics data. Imports increased by 14% y/y to USD 5.3bn, the highest since Aug 2022. With global commodity prices subdued, the increase indicates a rise in quantity, which is in line with the ongoing economic recovery. While exports posted a marginal growth of 0.7% y/y, they remained elevated at USD 2.8bn, suggesting continued higher shipments of rice despite India's decision to withdraw a ban on rice exports in September. The stats office will release a detailed breakdown of the external trade data at a later date.

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In the first half (Jul-Dec) of FY25, Pakistan recorded a goods trade deficit of USD 11.2bn, up 0.2% y/y. Exports soared by 10.5% y/y to USD 16.6bn, driven by higher food (mainly rice and sugar) and textile shipments. Meanwhile, imports rose by 6.1% y/y to USD 27.7bn during this period.

Going forward, the goods trade deficit is expected to widen further over the coming months as imports pick up amid a revival in factory activity and consumer demand. This is likely to offset the rise in exports. In FY24, the deficit amounted to USD 24.2bn.

• Food, fuel and utility prices remained muted
• Core inflation cooled but at a slower pace
• SBP likely to go for another rate cut this month

CPI inflation maintained a downtrend in December, easing to 4.1% y/y, the lowest since April 2018, from 4.9% y/y in November, data from the Pakistan Bureau of Statistics showed. The reading is in line with the FinMin's forecast of 4-5% for the month. Sequentially, inflation rose 0.1% m/m in December.

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Food inflation was muted at 0.3% y/y due to a decline in the prices of non-perishable food items such as wheat, rice, eggs, sugar and tea. Further, deflation persisted in the transport segment due to a decline in fuel prices. Likewise, utility prices and house rents grew 3.4% y/y, the slowest pace since Sep 2022, led by a fall in the cost of electricity. On the other hand, inflation in health, education and clothing and footwear segments continued to witness a double-digit growth during the month. This was reflected in core inflation, which although softened to a multiyear low but remained sticky at 8.1% y/y in cities and 10.7% y/y in rural areas.

The slowdown in inflation is likely to prompt the State Bank of Pakistan (SBP) to go for another rate cut at its next meeting, the date for which is yet to be announced. Last month, the central bank slashed the key rate for the fifth straight time by 200bps, bringing total reductions since June 2024 to 900bps to 13.0%. The high base effect, stable currency, and tepid consumer demand are expected to keep inflation contained over the next few months.

• Industrial output contracted; growth in agriculture and services sectors eased notably
• GDP growth likely to pick up in the remaining quarters of FY25

The economy posted a sluggish growth of 0.9% y/y in the first quarter (Jul-Sep) of the ongoing fiscal year, decelerating from a 3.3% y/y increase in the previous quarter, according to data released by the Pakistan Bureau of Statistics. The print was the lowest since Q4 FY23. Despite a low base, the industrial sector contracted for the second consecutive month by 1.0% y/y due to a decline in mining, factory and construction activity. Since Q3 FY23, industrial output has expanded only once as tight fiscal and monetary policies, elevated energy prices, import curbs and weak investor confidence took a toll on the sector.

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The agriculture and services sectors performed well, but they also saw a much slower pace of growth in Q1 FY25. Lower crop output led the farm sector to post 1.2% y/y growth, the lowest in two years. Similarly, the services sector, which accounts for nearly three-fifths of the country's economy, grew 1.4% y/y, down from 3.9% y/y, owing to muted wholesale and retail trade as well as a fall in transport and storage and public administration subsegments.

Going forward, GDP growth is expected to pick up in the remaining quarters of FY25, supported in part by a sharp fall in interest rates. The view is in line with that of the State Bank of Pakistan, which last month said it forecast the growth to be in the upper half of the projected range of 2.5%-3.5% in this fiscal year, recovering further from 2.5% growth in FY24.

Govt notifies pension reforms to cut expenses (Dawn)

BLA among main perpetrators of terror in 2024 (Dawn)

Shehbaz likely to induct new faces in cabinet (Dawn)

Govt launches operations for 7th digital agricultural census (Dawn)

Industry offers divergent views on economic performance in 2024 (Dawn)

FBR falls Rs386bn short of revenue target (Dawn)

Country's poverty rate stands at 25pc (Dawn)

Internet blocking is 'legal grey area', Senate body told (Dawn)

PTI finalises charter of demands for talks (Express Tribune)

Pakistan begins 2-year term at UNSC (Express Tribune)

US paper exposes India's hand in target killings in Pakistan (The News)

Second round of govt-PTI talks today (The News)

Deregulation drives pharma growth to 22% as GDP crawls below 1% (The News)

Petroleum product sales rise in H1 FY25 despite December slowdown (The News)

• Growth of output and new orders highest since Apr 2022
• Inflationary pressures ease

The Manufacturing PMI increased to 54.3 in December from 53.8 in November, according to the monthly survey by S&P Global. The index has been above the 50.0 no-change threshold for 16 consecutive months. The latest reading is equal to the one in Apr 2022 and the two are the strongest since Nov 2017.

Data Download

Output and new orders rose at sharp and broadly similar rates. Both registered the strongest growth since Apr 2022. New export orders increased for the first time in five months.

Manufacturers raised their purchasing activity. Input buying increased at a pace which was the strongest in almost two years. After two consecutive months of contraction, pre-production inventory building resumed in December. The rate of accumulation was the highest since Nov 2022. The sharp deterioration of vendor performance continued in December, although it eased from November. Panellists cited traffic and port congestion.

The manufacturers decreased employment slightly in December. The minor reduction came after three months of continuous job creation. The rate of backlog depletion was sharp and at a 13-month high.

In December, there was a renewed moderation in inflationary pressures that came after the peaks in November. Input price inflation was below its historical average. Companies raised charges at a slower and historically muted rate.

Sentiment decreased to a four-month low in December. Nonetheless, manufacturers remained confident that output will increase over the coming year on the back of hopes that demand will strengthen further and plans for new product launches.

• Hot money produce net inflows of USD 2.6bn in Jan-Nov

BSP-registered foreign portfolio investments (FPIs) produced net inflows of USD 96.6mn in November, which compares with net outflows of USD 529.7mn in October and net inflows of USD 671.8mn in Nov 2023, the BSP said. The BSP now calls these transactions "Foreign Investments Registered with the BSP, through Authorized Agent Banks (AABs)." Gross inflows rose both m/m and y/y to USD 1.9bn in November. Gross outflows fell m/m, but nearly doubled y/y, to USD 1.8bn.

In November, 71.4% of registered investments were in Peso government securities. The remaining 28.6% was invested in PSE-listed securities, mostly in banks; holding companies; property; transportation services; and food, beverage and tobacco sectors. The largest investment amounts came from the UK, Singapore, the US, Luxembourg and Norway, which had a combined share of 90.0%. With regard to outflows, the US continued to be the largest destination, as it received 51.8% of total outward remittances in November.

Hot money produced net inflows of USD 2.6bn in Jan-Nov, reversing net outflows of USD 43.7mn in Jan-Nov 2023. Inflows rose by 42.8% y/y to USD 16.9bn in Jan-Nov, whereas outflows climbed 20.4% y/y to USD 14.3bn.

BSP's latest Balance of Payments outlook was published in September. The central bank forecasts net FPI inflows of USD 4.2bn in 2024 and USD 2.9bn in 2025. Net FPI amounted to USD 0.6bn in 2023.

• He vetoes PHP 194bn worth of line items
• Vetoing the entire budget and reverting to a reenacted budget is not an option, he says
• Zero subsidy for PhilHealth remains

President Ferdinand Marcos Jr. signed on Monday the 2025 national budget, which is worth PHP 6.326tn, down from initially proposed PHP 6.352tn. He said that there were calls to veto the entire budget. However, reverting to a reenacted budget cannot be afforded, because it will delay vital programmes and jeopardise the economic growth targets, including the administration's goals of achieving a single-digit poverty rate and upper-middle-income status, he said.

Marcos vetoed PHP 194bn worth of line items seen as inconsistent with the government's priority programmes. The provisions subject to direct vetoes were not responsive to the people's needs, he said in his speech. The president directly vetoed PHP 26.1bn worth of projects under the Department of Public Works and Highways (DPWH) and PHP 168.2bn allocated under "unprogrammed appropriations."

According to Public Works Secretary Manuel Bonoan, the vetoed projects were "not ready for implementation," the BusinessWorld reported. President Marcos said that the unprogrammed appropriations increased by 300% under the Congress-approved budget bill. The president also pursued "conditional implementation" on specific items to ensure that the funds are utilized in line with their authorized and stated purposes.

The signed budget envisages that the education sector will receive an allocation of PHP 1.05tn. It is followed by public works (PHP 1.01tn); national defence (PHP 315.1bn); interior and local government (PHP 279.1bn); health (PHP 267.8bn); and agriculture (PHP 237.4bn).

Notably, Marcos confirmed the zero subsidy for the Philippine Health Insurance Corporation (PhilHealth) and assured the delivery of its services will not be hampered. Finance Secretary Ralph Recto said that PhilHealth's corporate operating budget is sufficient. We remind that the scrapping of PhilHealth's subsidy is a very controversial issue, with critics alleging it violates the Sin Tax Law, the Universal Health Care Law and the Constitution.

• Duplex housing, condominium prices fall, while single-detached house prices increase
• Prices in capital region fall y/y, q/q, while prices outside capital post small y/y growth

Residential real estate prices of various types of new housing units in the country declined by 2.3% y/y in Q3, reversing a 2.7% y/y increase in Q2, based on the residential real estate price index (RREPI), the BSP said. The RREPI is based on banks' data on actual mortgage loans extended to acquire new housing units. The latest reading is the first y/y decrease since Q3 2021. Prices in the National Capital Region (NCR) fell by 14.6% y/y, whereas prices in Areas Outside the NCR (AONCR) rose by 3.0% y/y.

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The RREPI dropped by 1.6% q/q in Q3, after rising by 1.8% q/q in Q2. In Q3, residential property prices in the NCR and the AONCR both decreased q/q, by 3.7% and 1.0% respectively.

In y/y terms, third-quarter nationwide price indices fell for duplex housing units (by 48.1%) and condominium units (by 9.4%). Meanwhile, prices of single-detached/attached houses and townhouses rose y/y, by 2.9% and 0.7% respectively.

The BSP noted that the number of transactions for duplex housing units was relatively low in Q3, accounting for only 0.15% of the total number of new housing units sold during that period. Most of the duplex loan transactions were for low-value properties.

With regard to condominium units, their prices fell by 14.3% y/y in the NCR but rose by 3.6% y/y in AONCR. In a report released in December, Colliers said that a large condominium inventory has yet to be absorbed by the capital region's market.

The number of residential real estate loans (RRELs) extended for all types of new housing units fell by 15.7% y/y in Q3. The number of loans granted in the NCR and AONCR both dropped y/y, by 20.3% and 13.0% respectively. In Q3, the number of granted RRELs decreased y/y across all types of new housing units, including single-detached/attached houses (by 24.5% to 2,242); duplex housing units (by 76.7% to 10); townhouses (by 0.7% to 1,367); and condominium units (by 13.2% to 3,007).

The third-quarter declines in the number of RRELs are significant, but not as severe as the ones registered during the coronavirus pandemic beginning in Q2 2020, according to the BSP. In Q3, consumers held a more pessimistic view of buying a house and lot in that quarter, according to the Q3 2024 Consumer Expectations Survey (CES). It should be noted that the total number of RRELs was 3.1% higher q/q in Q3.

In Q3, the average appraised value of new housing units was PHP 86,417 per sqm. The average values per sqm in the NCR and AONCR were PHP 135,076 and PHP 60,804, respectively.

• Upward price pressures came from major food items, electricity and petroleum
• Downward price pressures came from agricultural commodities like rice
• DBCC maintains the inflation target of 2.0-4.0% for 2025-2026, sets the same range for 2027-2028

The central bank projects December inflation to settle within the 2.3-3.1% y/y range, the BSP said in its month-ahead inflation forecast. The full-year average inflation is expected to be 3.2%. The inflation target range is 2.0-4.0%. The statistics office will release the CPI data for December on Jan 7. Likely sources of upward price pressures for December include higher prices of major food items due to the supply disruptions from recent weather disturbances, as well as higher electricity rates and petroleum prices. Lower prices of agricultural commodities, such as rice, are expected to partly offset the upward price pressures.

CPI inflation speeded up to 2.5% y/y in November from 2.3% y/y in October. The CPI rose by 3.2% y/y in Jan-Nov.

In early December, the Development Budget Coordination Committee (DBCC) in consultation with the BSP decided to maintain the inflation target of 2.0-4.0% for 2025-2026 and set the same range for 2027-2028. This range continues to be an appropriate representation of the medium-term goal for price stability, given the current structure of the country's economy and the macroeconomic outlook over the next few years, the press release said.

Click here for our comprehensive database of macro forecasts.

• Revenues edge down 0.6% y/y due to a sharp drop in non-tax revenues
• Expenditures climb 27.1% y/y
• Budget deficit widens by 5.9% y/y in Jan-Nov

The national government reported a budget deficit of PHP 213.0bn in November, which compares with a deficit of PHP 93.3bn in Nov 2023, the Bureau of the Treasury said on Dec 26. Total revenue collections fell by 0.6% y/y to PHP 338.3bn in November. The decline was driven by non-tax revenues, which dropped by 70.7% y/y to PHP 15.9bn. The Nov 2023 non-tax revenue figure includes a one-off remittance of additional dividends from the BSP worth PHP 23.8bn.

At the same time, tax revenues rose by 12.7% y/y to PHP 322.4bn in November. The Bureau of Internal Revenue's (BIR) collections climbed 17.8% y/y to PHP 247.6bn in November on the back of the double-digit increase in collections from income taxes, VAT, excise taxes and documentary stamp tax (DST). The Bureau of Customs (BOC) collection declined by 1.7% y/y to PHP 72.4bn in November. Collections from import duties and excise taxes dropped y/y, but VAT collections rose.

Expenditures climbed 27.1% y/y to PHP 551.3bn in November, reflecting higher capital expenditures for road and defence infrastructure projects; social protection and education related programs; as well as personnel services requirements. November expenditures also grew due to the larger National Tax Allotment shares of local government units and the release of special shares in the proceeds of national taxes.

The cumulative budget balance is a deficit of PHP 1.2tn in Jan-Nov, some 5.9% wider y/y. The 11-month gap is equal to 79.3% of the PHP 1.5tn full-year target. Total revenues rose by 15.2% y/y to PHP 4.1tn or 96.1% of the PHP 4.3tn revised full-year programme. Total expenditures increased by 13.0% y/y to PHP 5.3tn or 91.8% of the PHP 5.8tn revised full-year target.

We estimate that the 11-month budget deficit is equal to 4.4% of projected 2024 GDP. The cumulative gap was equal to 4.6% of GDP in Jan-Nov 2023. In 2023, the full-year deficit-to-GDP ratio was 6.2%. The target for 2024 is 5.7% of GDP.

Marcos vetoes P194-B items in budget (BusinessWorld)

Budget critics: Veto still left 'pork' intact (INQUIRER)

NG gross borrowings decline to P65 billion in November (BusinessWorld)

Philippine contact center industry ends year with $31.5 billion in revenue (BusinessWorld)

Home prices fall for 1st time in 3 years (BusinessWorld)

Hot money net inflows hit $96.6M in November (BusinessWorld)

2024 budget deficit likely to be within ceiling (BusinessWorld)

PHL net external liability widens at end-September (BusinessWorld)

PH officially drops World Bank loan for Customs modernization project (INQUIRER)

PH manufacturing sector records strong growth in 2024 (Philippine News Agency)

Oil price cuts on New Year's Eve (Philippine News Agency)

• Proposal has been approved by PM Ibrahim
• Malaysia meets 30% of its domestic rice demand through imports

The National Action Council on Cost of Living (Naccol) has proposed importing additional white rice from Pakistan to boost local supplies and contain prices, media reported. The proposal, which has been submitted to state-run rice importer Padiberas Nasional Bhd (Bernas), has been approved by PM Anwar Ibrahim but has yet to be finalized.

This comes after the premier in October 2024 visited Pakistan, where he pledged to increase rice and meat imports from the South Asian nation. According to Naccol's chairman Syed Abu Hussin Hafiz Syed Abdul Faisal, who accompanied Ibrahim to Pakistan, some 28 Pakistani exporters had expressed readiness to supply 100,000 tons of rice to Malaysia.

According to Bernas, which is the sole importer of rice, Malaysia's annual rice consumption is 2.5mn metric tons, of which about 30% is imported. The bulk of the volume is sourced from Vietnam, Thailand and Pakistan, India and Myanmar.

• New orders from overseas markets fell for first time since March
• Input price inflation softened to lowest since June 2020
• Reduced purchasing activity signals muted manufacturing activity in coming months

Malaysia's manufacturing sector continues to face headwinds amid subdued demand, with manufacturing PMI falling to a nine-month low of 48.6 in December, from 49.2 in November, according to S&P Global. New orders declined, including from international markets. Subsequently, firms scaled back production at a modest rate that was nonetheless the most pronounced in 2024. Moreover, employment levels fell for the third straight month. There was a positive development on the price front as input price inflation cooled sharply to the lowest since June 2020. In response, firms raised their selling prices only fractionally. Lower cost pressures and hopes that new orders will return to growth territory supported manufacturers' optimism regarding manufacturing production outlook in 2025.

S&P said that the latest PMI data suggest that GDP growth in Q4 2024 continued, though at a slower pace, as well as pointing to sustained year-on-year improvements in official manufacturing production. However, manufacturing activity is likely to remain muted in coming months as signalled by the reduced purchasing activity by manufacturers in December, it added.

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• Both corporate and household credit growth eased
• Bank deposits recovered
• Impaired loans maintained downtrend

Bank credit to the private sector remained robust but eased slightly to 5.8% y/y in November, from 6.0% y/y in October, according to data released by Bank Negara Malaysia. Credit growth to households decelerated to eleven-month low of 6.1% y/y while loans to businesses grew 5.4% y/y, down from 5.7% y/y in the previous month.

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Meanwhile, bank deposits growth recovered to 3.6% y/y in November, up from a multiyear low of 3.1% y/y in October, with the highest increase witnessed in the deposits of individuals, followed by businesses and financial institutions. The loan-to-deposit ratio stood at 87.8%. Lastly, total impaired loans declined for eighth consecutive month by 5.1% y/y during the month, indicating improving financial health of businesses as well as households.

During Jan-Nov 2024, credit growth averaged 6.0% y/y compared with 4.6% y/y growth seen in the same period last year. Healthy consumer demand, pick up in industrial activity and relatively affordable borrowing cost supported the growth.

• Revenue improved while expenditure edged down
• Government on track to achieve fiscal deficit target in 2024

The federal government is on track to achieve its fiscal deficit target in 2024, with the Jan-Nov budget gap amounting to MYR 72.7bn, down by 11.4% y/y. According to data from Bank Negara Malaysia, revenue strengthened by 2.8% y/y to MYR 285.4bn while expenditure edged down by 0.4% y/y to MYR 358.1bn.

Data Download

According to our calculation, the fiscal deficit during Jan-Nov was equal to 3.7%. The government targets the deficit at MYR 84.3bn, or 4.3% of GDP this year, down from 5.0% in 2024. It aims to stick to fiscal consolidation in 2025 through revenue mobilization and subsidy cuts. Fiscal deficit has been targeted at 3.8% of GDP next year.

Mavcom: November 2024 air passenger traffic hit eight mil, up 15.8% y-o-y (The Edge Malaysia)

Malaysia's consumer sector poised for growth in 2025 amid wage increases, economic expansion (The Edge Malaysia)

Ringgit to strengthen further this year after breakout in 2024 - think tank (The Edge Malaysia)

Price of RON95 remains unchanged, RON97 and peninsular diesel up by three cents (The Edge Malaysia)

Govt mulls rice imports from Pakistan to stabilise supply, prices (The Edge Malaysia)

Musa Aman sworn in as 11th Yang di-Pertua Negeri of Sabah (The Edge Malaysia)

X and Google yet to apply for social media licence, says MCMC (The Edge Malaysia)

Review of 12MP initiatives needed before next Malaysia Plan, says Zahid (Free Malaysia Today)

Malaysia begins social media licensing for safer digital platforms (Free Malaysia Today)

Multi-billion ringgit Penang LRT project to kick off soon, Gamuda-led consortium at forefront (New Straits Times)

• Government focusing on executing next year's budget

The government is currently focusing on executing next year's budget and there are no plans to draft a supplementary budget, a senior FinMin officials said on Thursday quoted by local media. The government can inject funds early in the year by front-loading spending from Budget 2025 and the effect might be greater than a supplementary budget, the official said. At the same time, it may take at least 2 months for the government to execute a supplementary budget and such budget may be viewed as a pre-election measure in light of the potential presidential election later this year, the official said.

Rumors that the government is preparing a supplementary resurfaced after the government presented its 2025 economic policy direction and revised the GDP growth forecast for 2025 to 1.8%. FinMin Choi stated while presenting the new forecast that the government will devise additional stimulus measures if necessary. In our view, the approval of a supplementary budget in the current political situation remains very difficult due to the tensions created by the martial law declaration and the potential for snap presidential election later this year.

Question:

Do you have a link to the data on how much they drawdown from the Public Fund annually? And also the link for the BoK lending data?

The question was asked in relation to the following story: Government borrowed cumulatively KRW 173tn from BOK in 2024

Answer:

Unfortunately, I have never seen anything officially-released about the Public Fund usage. My source are articles in local media which mainly cite opposition lawmakers who have conducted analysis on finance ministry data. For instance, this article citing an analysis of DP lawmaker, and this article citing a report by the National Assembly budget office, and this article from 2023. Overall, not a lot is written about the Public Fund usage and I assume that data is pretty difficult to obtain.

As for the lending from the BOK, I have taken the table directly from this Yonhap news article, which again refers to data provided by a Democratic Party lawmaker. The Bank of Korea only published end-of-month balances of borrowing to the government, as you can see here. However, the latest official data is for October and such data does not capture borrowing that has been repaid within the month. So all headlines from yesterday were based on the data released by the Democratic Party.

• CIO still undecided whether it will try to execute detention warrant

President Yoon vowed to resist arrest and "fight to the very end to protect this nation," according to a statement he gave his supporters during a rally outside the presidential office on Thursday. His statement comes after the the Corruption Investigation Office (CIO) of High-ranking officials was granted a detention warrant by a Seoul Court on Dec 31. The CIO is still undecided whether to exercise the detention warrant which has sparked tensions between Yoon's supporters and opponents. The detention warrant is set to expire on Jan 6. However, Yoon's defense team deems that the warrant is illegal since the CIO does not have jurisdiction to investigate insurrection charges related to the Dec 3 martial law declaration.

To recap events from the past week or so, the opposition decided to impeach Acting President and PM Han Duck-soo on Dec 27 over his refusal to appoint constitutional court judges, among other reasons. The new Acting President, FinMin Choi Sang-mok decided to appoint 2 out of the 3 constitutional court judges recommended by the National Assembly on Jan 31, which has somewhat calmed the political situation. However, the political situation remains tense and political polarization has increased as Yoon maintains a significant group of supporters that are willing to defend him, including in the ruling PPP party.

• Growth projected to slow down from 2.1% in 2024
• Inflation also predicted to decelerate to 1.8% from 2.3% in 2024

The finance ministry cut its forecast for growth in 2025 to 1.8%, citing the sluggish recovery of domestic demand and the slowing pace of export growth, according to a press release issued by the FinMin on Jan 2. The 2025 forecast is now slightly lower than Bank of Korea's forecast of 1.9%. The uncertainty regarding future growth is increasing, while the external environment is also challenging, the FinMin said. "Changes in trade and industrial environments caused by policy shifts of the leading country in the global economy and intensified international competition in advanced industries, pose significant challenges for the Korean economy," according to the FinMin.

Meanwhile, the FinMin also projects that average CPI inflation will also slow down to 1.8% in 2025 from 2.3% in 2024. The increase in employment is projected at 120,000 in 2025, a smaller increment compared to last year.

The government will focus on four pillars to stabilize the economy, namely: (1) Supporting the recovery of people's livelihoods, (2) Managing external creditworthiness, (3) Reacting to the vagueness in the international trade environment, and (4) Increasing industrial competitiveness.

In our view, the revision of the growth forecast and the FinMin's commentary suggest that the government is seriously considering to table a supplementary budget in the near future in order to support growth.

Click here for our comprehensive database of macro forecasts.

Police raid multiple sites linked to Jeju Air disaster (Korea JoongAng Daily)

YouTubers clash in front of Yoon's residence (Korea JoongAng Daily)

Explainer: Barrier bears brunt of Jeju Air crash blame (Korea JoongAng Daily)

Korea enters 2025 on backfoot amid won woes, glum growth outlook (Korea JoongAng Daily)

S.Korea's 2024 exports hit all-time high, driven by chips, higher shipments to China (Korea Economic Daily)

Impeached president resists arrest over martial law bid (Korea Times)

Economic policy in 2025 to focus on 'stable management' amid slow growth projection (Korea Times)

[Guest essay] During martial law in South Korea, I saw the true face of bravery (english.hani.co.kr)

National Investigators' move to detain suspended President Yoon Suk Yeol sparks tensions As a joint investigative team led by the Corruption Investigation Office for High-ranking Officials moved to detain President Yoon Suk Yeol, tensions flared between his supporters, opponents, police a (Korea Herald)

Yoon Supporters Continue Overnight Rally to Protest Impeachment (KBS)

Finance Ministry Forecasts 1.8% Economic Growth in 2025 (KBS)

• Weakening won puts pressure on prices
• Food and energy prices rise by 2.3% y/y, while core inflation remains stable at 1.8% y/y

CPI inflation picked up to 1.9% y/y in December from 1.5% y/y in November, the highest in 4 months and higher than the 1.7% y/y print expected by economists polled by Bloomberg, according to data released by stat office Kostat. Headline inflation picked up as food and energy prices rose by 2.3% y/y compared to 0.3% y/y growth in November amid the sharp weakening of the Korean won throughout December due to the political chaos in the country. Core inflation, on the other hand, stayed unchanged at 1.8% y/y in December as the depreciation of the local currency was felt most rapidly in food and fuel prices. Fresh food prices rose by 2.9% y/y compared to 0.4% y/y in November, whereas transport prices rose by 1.3% y/y after they fell by 1.1% y/y in November. Meanwhile, most core price categories posted relatively stable increase in prices compared to November.

Data Download

CPI inflation averaged 2.3% in 2024, which is in line with the latest central bank forecast for inflation. That said, BOK initially predicted higher inflation of 2.6% y/y in 2024. Following the release of the December CPI print, the central bank said that headline inflation may accelerate to the 2% range in the coming months, but is still expected to stay below 2% from February onwards due to weak demand-side pressure. Earlier this month, the BOK had said that it is looking to cut the policy rate further in 2025 in order to offset the weakness of domestic demand. In our view, the higher inflation print in December and the weakening of the won would put brakes on further policy easing by the BOK in Q1, but the central bank is likely resume rate cuts later in 2025.

• Weak domestic economic conditions, potential protectionist US policies weigh on sentiment
• Inflationary pressures intensify as output prices rise at the fastest level since November 2023

Manufacturing PMI deteriorated to 49.0 in December from 50.6 in November, posting a reading below 50 for the third time over the past four months, according to data released by Markit Economics. Stronger decline in output and renewed contraction in new orders were behind December's weaker PMI print. At the same time, the outlook for production over the next year deteriorated to the weakest since July 2020 as firms cited increasing concerns about the health of domestic economic conditions and potential US protectionist policies. The backlog of work also decreased as the lack of new orders forced firms to complete existing orders instead. Employment fell marginally in December due to non-replacement of voluntary workers.

Data Download

On the inflation front, inflation pressures intensified as output prices rose at the fastest level since Nov 2023. Input prices also rose at the most pronounced rate since July 2024.

Overall, the manufacturing PMI remained relatively unaffected by the political chaos in the country that transpired in December. The concerns about trade war tensions and the domestic economy were the primary factors behind December's fall.

Question:

What is the rate of FX pass-through to inflation in Korea? (i.e. what does a 10% sell off in the won do?). Presumably, as the FX pressures came in Dec it's not seen in the data yet?

The question was asked in relation to the following story: CPI inflation picks up to 1.9% y/y in December

Answer:

The FX pass-through rate in Korea changes in time and it usually increases when the won depreciates sharply. I am using as source this BOK blog post from May 2024 available in Korean only: https://www.bok.or.kr/portal/bbs/B0000347/view.do?nttId=10084398&menuNo=201106

Considering that the USD/KRW rate is now above 1,400 per dollar, the FX pass-trough rate is probably around 10%, i.e. for each 1% increase in the won/dollar rate, headline CPI inflation rises by 0.1pps.

I think that some impact of the weakening currency was already felt in December because the currency has been depreciating heavily starting from Trump's election in November and BOK's back-to-back rate cuts in October and November. Obviously, the bigger impact will be felt from January onward due to the martial law chaos and Fed's hawkish shift in December.

Question:

Can you share link for source of the credit card data?

The question was asked in relation to the following story: Consumer sentiment falls sharply by 12.3pts m/m in December on martial law shock

Answer:

Source of the data is Kostat Nowcast, but it is only available in Korean - https://data.kostat.go.kr/nowcast/main.do?initId=1

Please see the attached file for data on weekly credit card usage, which I have extracted from the site. Credit card usage fell by 26.3% in the week ending Dec 6, but it then recovered and grew by 16% w/w in the following week. As it can be seen from the series, the credit card usage is very volatile and is affected by factors such as public holidays, interest rate decisions and other major events.

Question:

if a supplementary budget was to be announced, what would be the expected funding source? Would it be further bond issuance?

The question was asked in relation to the following story: FinMin says growth in 2025 likely to fall below 2%

Answer:

I think it is still too early to speculate whether a supplementary budget will be approved this year, by which government will be drafted, and what will be its size. However, the prospects for approval of supplementary budget have improved under acting President Choi Sang-Mok, the FinMin, who has pledged to stabilize state affairs. Meanwhile, the two main parties remain effectively in a state of war and they are likely preparing to enter election campaign in case the Constitutional Court upholds Yoon's impeachment. The opposition DP wants to raise the tax burden on the rich and increase social spending, including through basic income, while the conservative ruling PPP is a strong proponent of fiscal soundness and tax cuts. It should be noted that the National Assembly, which is controlled by the opposition, cannot increase budget spending without the consent of the government.

If FinMin Choi and the opposition manage to reach an agreement while he is still acting President (in early 2025), I think the source of funding for new spending will be definitely debt issuance as the FinMin will likely oppose any tax hikes while the economy is slowing down.

If the President is impeached by the Constitutional Court and there are new elections in mid-2025 which are then won by the DP candidate (as pollsters predict), I think the DP will definitely loosen fiscal policy considerably with a supplementary budget in H2 2025, which will be funded mainly by debt issuance and only partially by tax hikes.

If there are no elections and Yoon returns to office, I think the odds of a supplementary budget will decline sharply as the political crisis will reignite.

• Semiconductor exports surge by 43.9% y/y in December
• Exports to China, USA increase strongly by 6.6% y/y and 10.5% y/y

Export growth quickened to 6.6% y/y to USD 61.4bn in December from 1.4% y/y in November, according to data released by the Ministry of Trade, Industry and Energy. Strong demand for semiconductors continued to underpin growth as semiconductor exports rose by 43.9% y/y in December following a 31.5% y/y increase in November. In addition, ship exports and computer exports also posted robust double-digit growth of 17.6% y/y and 76.7% y/y, respectively. On the downside, most other sectors reported tepid growth or contractions. For instance, general machinery exports fell by 4.1% y/y, while steel products exports fell by 5.5% y/y and car exports fell by 0.1% y/y.

Data Download

By trading partner, exports to China and the USA were both robust as they rose by 6.6% y/y and 10.5% y/y, respectively. Exports to Vietnam rose strongly by 9.1% y/y in a sign of rising demand for chips from Samsung's manufacturing plants in the country. On the downside, exports to the EU and Japan underperformed, falling by 0.2% y/y and rising by 2.0% y/y, respectively.

Imports rose by 3.3% y/y to USD 54.9bn in December, recovering from a 2.4% y/y decline in November. This happened despite the fact that imports of energy products fell by 18.1% y/y in December driven by falling energy prices and energy consumption.

The trade surplus rose by 45.8% y/y to USD 6.5bn as strong export growth continued to underpin the improvement in the trade balance. In the entire 2024, the trade balanced improved to a USD 51.8bn surplus compared to USD 10.3bn deficit in 2023. Exports rose by 8.2% in 2024 to a record-high level of 683.8bn in 2024, exceeding the previous record reached in 2022.

• Manufacturing, non-manufacturing sentiments both report declines in December

Data Download

The composite business sentiment index fell to 87.0 in December from 91.5 in November as the political chaos in the country impacted negatively business sentiment, data from Bank of Korea showed. The business confidence survey was conducted between Dec 11 and Dec 18, well after the martial law declaration on Dec 3, but mostly before the impeachment of President Yoon on Dec 17. Business sentiment in the manufacturing sector fell to 86.9 from 90.6 in November as companies reported worsening production growth and new orders growth. The business sentiment in the non-manufacturing sector, meanwhile, fell to 87.1 from 92.1 in November as sales growth, profitability and and the business conditions of companies all deteriorated. The economic sentiment index, which reflects both business sentiment and consumer sentiment fell to to a 50-month low of 83.1 mostly on the back of the significantly weaker consumer sentiment. All in all, confidence indicators suggest that the economy should be bracing for difficult few months after the martial law declaration in December.

• Electronic component output rises by 5.0% y/y, but is offset by weakness in most other sectors
• Industrial shipments fall by 6.9% y/y on domestic market, biggest drop in 38 months

Industrial production rose by 0.1% y/y in November, data from Kostat showed on Dec 30. Industrial production weakened from 6.3% y/y growth in October and posted a somewhat weaker print than the 0.5% y/y growth expected by economists polled by Bloomberg. In m/m terms, industrial production fell by 0.7% m/m sa after it stayed unchanged m/m in October. Overall, weak domestic demand and consumer spending continued to weigh on industrial production, even though external demand remains a positive factor for growth.

Data Download

Electronic component output remained the main driver of growth, rising by 5.0% y/y in November, albeit it decelerated from 10.9% y/y growth in October, as demand for semiconductors remained one of the primary growth engines. In addition, pharmaceutical output rose by 8.2% y/y caused by rising structural demand for drugs. On the downside, most other sectors exhibited weakness. For instance, motor vehicle output fell by 6.7% y/y driven by continuing disruptions in the sector caused by labor strikes. In addition, electrical equipment output fell by 13.2% y/y, while furniture output fell by 29.4% y/y.

Industrial shipments to the domestic market fell by 6.9% y/y in November, posting their biggest drop in 38 months which comes as a major sign that domestic demand is slowing down. At the same time, shipments to the external market rose by 2.4% y/y and quickened slightly from 2.2% y/y growth in October on the back of steady export growth.

When it comes to investment demand, domestic machinery orders received fell by 15.3% y/y as capital spending in the non-manufacturing sector in particular weakened. In addition, the average capacity utilization rate in manufacturing sector fell to 71.8% in November from 72.3% in October and 73.0% in Nov 2023.

• Durable goods sales contract sharply by 5.2% y/y dragged down by falling car sales
• Retail sales likely to take serious hit from martial law chaos in coming months

Retail sales declined by 1.9% y/y in November, accelerating from 0.9% y/y decline in October, according to data released by the stat office Kostat. Retail sales likely reacted negatively to the fall in stock prices in November and the continuing weakening of the local currency triggered by the election of President Trump. Accordingly, consumer sentiment also fell slightly to 100.7 in November from 101.76 in October. It should be noted that consumer sentiment fell further to 88.4 in December from 100.7 in November in the aftermath of the martial law declaration, indicating that further pain for retail sales is on the way.

Data Download

Looking at the breakdown of retail sales, durable goods sales showed the biggest weakness as they fell by 5.2% y/y in November dragged down by a decline in passenger car sales by 7.9% y/y. In addition, computer and phone sales, household appliances sales and furniture sales all fell in a sign of a broad-based softness in demand for big ticket items. On the positive side, semi-durable goods sales rose by 1.4% y/y and posted their first increase in 12 months. Meanwhile, non-durable goods sales fell by 1.6% y/y as they were driven by a decline in fuel sales by 4.0% y/y and in cosmetics sales by 9.8% y/y.

Overall, retail sales remained anemic in November on the back of the cyclical weakness in consumer demand and the perceived fall in wealth due to the decline in stock prices. Consumer spending is likely to remain weak in the coming months, but will likely stabilize later in 2025 as political uncertainty gets resolved and the effect of monetary easing is felt by consumers. We remind that the BOK already cut twice its policy rate in October and November and has given signs that more rate cuts are on the way in 2025.

• Tax revenue shortfall forces government to borrow more from BOK
• Borrowing from BOK rises by 47% compared to previous record in 2023
• As government has only KRW 1tn unpaid loans to BOK, true source of deficit financing is likely Public Fund

The government has borrowed cumulatively some KRW 173tn (USD 117bn) from the Bank of Korea under its so-called overdraft account with the BOK which is used to fill temporary funding needs of the government that have arisen from a mismatch of revenue and expenditure, local media reported citing data released by the Bank of Korea and presented by opposition lawmaker Lim Gwang-hyun. The cumulative amount of funding rose by 47% from KRW 117tn in 2023, which was the previous record high. In addition, the interest paid on BOK loans to the government rose to KRW 209bn from KRW 150bn in 2023. The increase in interest costs happened despite the fact that the interest rate on such loans has decreased gradually throughout 2024 from 3.623% in Q1, to 3.563% in Q2, 3.543% in Q3 and 3.302% in Q4. The government still repaid KRW 172tn loans to the BOK throughout 2024, leaving just KRW 1tn unpaid loans, which have to be repaid by mid-January of the following year.

BOK loans are a makeshift financial resource that the government can use when revenues are insufficient to cover expenditures. For instance, the cumulative size of BOK loans rose sharply during the pandemic in 2020, but then declined in 2021 and 2022 when tax revenues surprised on the upside. In the last two years, government has experienced a tax revenue shortfall worth KRW 54tn in 2023, while in 2024 the tax revenue shortfall is likely to stand at KRW 29.6tn in 2024, according to the finance ministry's own estimate. The opposition DP has criticized the government for the large size of borrowing from the BOK and said that it is a consequence of its tax cut policies and the ongoing economic slowdown. Fiscal policy is urgently needed to change in order to overcome this, DP's Lim Gwang-hyun said.

It should be noted that the government has used not only BOK loans to cover the tax revenue shortfall, but has also tapped the so-called Public Fund, which is a sort of fund of funds which manages accounts of different government agencies and entities. The Public Fund can be used as a sort of deficit financing when the government faces financial difficulties. According to data released by the Democratic Party in October 2024 cited by local media, the government has withdrawn KRW 223.3tn from the Public Fund over the 3 years of the Yoon Suk-yeol government compared to KRW 78tn over the three years of the previous Moon Jae-in government. The government still pays interest to the Public Fund when it borrows from it, but the interest goes to other public entities and not the market. In our view, the true source of tax deficit funding over the past 2 yeas is likely the Public Fund rather than the BOK loans which are only a temporary stopgap measure and are repaid quickly to the BOK.

• Import growth surged to 7.7% y/y
• Exports contracted 0.5% y/y
• USD 5.2bn trade deficit balance for Jan-Nov period

The merchandise trade deficit increased by 28.7% y/y to USD 502mn in November, as reported by the Central Bank of Sri Lanka. The surge was mainly driven by strong 7.7% y/y growth in imports while exports declined 0.5% y/y.

Data Download

In more detail, Sri Lanka's earnings from merchandise exports fell to USD 994mn, primarily due to declines in mineral and industrial exports, despite growth in agricultural exports. Industrial goods exports saw a marginal decline, driven by reductions in transport equipment, gems, diamonds, jewellery, and machinery. However, petroleum product exports saw a notable increase, fuelled by higher export volumes. Textiles and garments exports remained steady at similar levels to the previous year.

On the other hand, imports rose to USD 1.49bn in November, reflecting a significant increase across all main import categories, supported by a low base from November 2023. The increase in imports was driven by higher spending on both food and non-food consumer goods. Notably, imports of food items, particularly edible oils, and non-food items, such as home appliances and clothing and accessories, saw growth. Similarly, spending on intermediate goods increased, largely due to higher imports of textiles and textile articles, along with moderate increases in wheat, rubber, food preparations, and vehicle parts. Expenditure on investment goods also recorded a slight increase, mainly due to a rise in imports of transport equipment compared to the previous year.

This widening to the trade deficit reflects the country's vulnerability to global markets and headwinds. On a cumulative front, the merchandise trade deficit stood at USD 5.2bn in Jan-Nov.

• Food inflation trends up to 0.8% y/y
• Core inflation was stable at 2.7% y/y

The Colombo consumer price inflation (CCPI) remained negative for the fourth consecutive month, recording a deflation of 1.7% y/y in Dec 2024, slightly better than the deflation of 2.1% y/y in Nov 2024.

Data Download

Non-food deflation moderated to 3.0% y/y in Dec 2024 from 3.3% y/y in Nov 2024, while food inflation saw a slight increase, rising to 0.8% y/y from 0.6% y/y in the previous month.

On a monthly basis, the CCPI recorded a 1.2% m/m increase in Dec 2024, driven by a 1.2% rise in food prices. Core inflation, which reflects underlying inflation trends, remained unchanged at 2.7% y/y in Dec 2024.

Looking ahead, the Central Bank projects that headline inflation will remain in negative territory for the next few months due to the continued impact of significant energy price reductions, the decline in volatile food prices, and a strong base effect from the earlier price hikes linked to tax amendments. Inflation is expected to turn positive later in the year, gradually converging with the targeted level of 5% in the medium term, supported by appropriate policy measures.

• Slightly short of 2.1mn target set for 2024
• 2025 target set at 3mn visitors and USD 5bn revenue
• India was top market in 2025

The tourism industry ended 2024 with over 2.05mn arrivals, narrowly missing its revised target of 2.1mn by 2.2%. This marks a 38.1% y/y growth and the highest annual total since 2019, though still 12% below the 2018 peak of 2.3mn arrivals.

December recorded 248,592 arrivals, up 18.2% y/y, with an average of 8,019 daily visitors - an increase from November's 6,139. While slightly below December 2018's record of 253,169, the strong performance helped push annual arrivals past the 2mn milestone. India remained the largest source market with 416,974 visitors (20.3% of total arrivals), followed by Russia (201,920), the UK (178,339), Germany (136,084), and China (131,681).

Earnings for 2024 are estimated to have exceeded USD 3bn, significantly higher than 2023's USD 2.1bn, showcasing the sector's resilience despite challenges like global travel advisories and visa issues. For 2025, the Sri Lanka Tourism Development Authority (SLTDA) has set ambitious goals of 3mn arrivals and USD 5bn in revenue. Plans include a unified national brand launch to enhance global appeal and a five-year roadmap targeting over 5mn visitors and USD 8.5-10bn in revenue.

Despite setbacks, stakeholders remain optimistic, citing Sri Lanka's growing momentum as a foundation for sustained growth and global competitiveness in tourism.

Tourist arrivals grow by 38% to 2 m in 2024 (Daily FT)

2024 sets record for Sri Lankans going abroad for work (Daily FT)

Cabinet approves submission of CBSL report on inflation deviation to Parliament (Daily FT)

Over 7,000 motorists penalized for traffic offenses in 24 hours (Ada Derana)

New Chief of National Intelligence appointed (Ada Derana)

President promises new economic policy framework (Daily FT)

Kingdom welcomed 35m in 2024 (Bangkok Post)

PM calls 2025 a year of opportunity (Bangkok Post)

Natthapong edges Paetongtarn for PM, People's Party crushes Pheu Thai: poll (Bangkok Post)

Pheu Thai, Bhumjaithai parties reaffirm coalition unity (Bangkok Post)

Government expects Bank of Thailand chairman decision soon (Bangkok Post)

Thai central bank announces bonds programme for 2025 (Bangkok Post)

Thai economic uncertainty increasing, central bank minutes say (Bangkok Post)

Thailand to impose minimum 15% corporate tax from Jan 1 (Bangkok Post)

Thai luxury car sales fell 25% in 2024 (Bangkok Post)

Phumtham dismisses coup fears, boasts of close ties with top brass (The Nation)

Business mergers in Thailand hit record high in 2024 (The Nation)

Subaru shuts Lat Krabang plant, shifts to imported vehicles (The Nation)

• Support for Natthapong rises to 29.85% from 22.90% in September
• Support for PM Paetongtarn falls to 28.80% from 31.35%

Natthaphong Ruengpanyawut, leader of the main opposition People's Party, is the most preferred choice for the position of prime minister, according to a nationwide survey by the National Institute of Development Administration (NIDA). The quarterly poll was conducted on a sample of 2,000 people from Dec 19-24.

Natthaphong was favoured by 29.85% of the respondents and was followed by PM Paetongtarn Shinawatra with 28.80%. In September, their support was 22.90% and 31.35% respectively. PM Paetongtarn is also the leader of the ruling Pheu Thai Party. She is a daughter of former PM Thaksin Shinawatra.

In both the September and the December surveys, the third and fourth most preferred politicians for PM were Pirapan Salirathavibhaga and Anutin Charnvirakul. They are the leaders of the junior ruling partners United Thai Nation Party and Bhumjaithai Party, respectively.

The December survey found that the People's Party is the most popular party by a significant margin. It is followed by Pheu Thai, United Thai Nation and Bhumjaithai. The Democrat Party, which is now a member of the ruling coalition, came next and was followed by the now opposition Palang Pracharath Party.

• Production drops y/y in 12 sectors, increases in 10
• Motor vehicle manufacturing the most important driver of the decline in total output
• Production contracts by 1.8% y/y in Jan-Nov

The manufacturing production index (MPI) declined by 3.6% y/y in November, after dropping by a revised 0.6% y/y in October, according to data from the Office of Industrial Economics (OIE). The November reading compares with a 0.3% decline expected in a Bloomberg survey of six economists. The capacity utilisation rate was 57.6% in November, down from 58.0% in October and 59.0% in Nov 2023. After seasonal adjustment, the MPI decreased by 2.0% m/m in November.

Data Download

In November, production fell y/y in 12 sectors and rose in 10. The largest negative contribution came from the manufacturing of motor vehicles, trailers and semi-trailers (down 26.7% y/y). Domestic car sales remained weak as banks and car financing firms continued to tighten auto lending, according to OIE director general Passakorn Chairat as quoted by the Bangkok Post. The second and third largest negative contributions came from the manufacturing of other non-metallic mineral products (down 8.8% y/y); and textiles (down 14.8% y/y). The largest positive contribution came from the production of machinery and equipment, not elsewhere classified (up 26.6% y/y).

We calculate that the MPI fell by 1.8% y/y in Jan-Nov. The industry ministry previously predicted positive manufacturing production growth in the range 1.5-2.5% in 2025.

• CA surplus falls y/y, driven by all component accounts except services
• Travel services receipts rise by 46.7% y/y
• CA surplus rises by 80.6% y/y in Jan-Sep

The current account balance was a surplus of USD 2.2bn in Q3, which compares with surpluses of USD 1.1bn in Q2 and USD 3.1bn in Q3 2023, the BOT said. The latest reading reflected net inflows of the goods and secondary income accounts. In the y/y comparison, the decrease in the CA surplus was driven by the goods, primary income and secondary income accounts.

Data Download

The merchandise trade surplus fell by 13.9% y/y to USD 5.8bn in Q3. Both exports and imports rose y/y, by 8.9% and 11.3% respectively. The net outflow of the primary income account widened by 18.5% y/y to USD 4.4bn. The net inflow of the secondary income account decreased by 9.0% y/y to USD 2.1bn.

On the other hand, the services account showed a net outflow of USD 1.2bn in Q3, some 42.0% narrower y/y. Services receipts rose by 26.8% y/y to USD 17.5bn, whereas services payments climbed 17.7% y/y to USD 18.8bn. Notably, travel receipts increased by 46.7% y/y to USD 10.2bn in Q3.

The net outflow of the financial account was USD 479.1mn in Q3, which compares with a net outflow of USD 6.2bn in Q3 2023. The net outflows in the direct investment and portfolio investment accounts both narrowed y/y, by 81.8% and 55.4% respectively. In addition, the net inflow of the other investment account jumped 19.4 times y/y.

The CA surplus rose by 80.6% y/y to USD 6.7bn in Jan-Sep. The sole driver of the improvement was the services account, where the net outflow narrowed by 67.0% y/y. At the same time, the goods trade surplus fell by 3.8% y/y, the net outflow of the primary income account widened by 5.8% y/y, and the net inflow of the secondary income account fell by 4.1% y/y.

The net outflow of the financial account widened by 8.8% y/y to USD 8.0bn in Jan-Sep. The most important contribution came from the other investment account, where the net inflow plunged by 74.4% y/y. At the same time, the direct investment account reversed to a small inflow, and the net outflow of the portfolio investment account narrowed by 21.9% y/y.

In December, the BOT announced its new macroeconomic projections. The central bank forecasts that Thailand's current account surplus will increase from USD 7.4bn in 2023 to USD 9.0bn in 2024 and USD 15.0bn in 2025. In December, the OECD predicted that the country will have current account surpluses of 2.8% of GDP in 2024, 3.9% in 2025 and 4.2% in 2026, up from 1.4% in 2023.

• Seasonally adjusted PCI falls by 0.4% m/m

The private consumption index (PCI) increased by 0.7% y/y in November, after edging down a revised 0.1% y/y in October, the BOT said on Dec 27. The PCI is a composite index representing private consumption conditions. The seasonally adjusted PCI fell by 0.4% m/m in November.

Data Download

The non-durables, semi-durables and durables indices dropped m/m in November. The decline in the consumption of non-durable goods was driven by fuel sales. Durable goods consumption dropped due to fewer motorcycle registrations. While remaining low, sales of passenger cars and pickups rose slightly. Spending on services was slightly higher m/m.

In the y/y comparison, all PCI components increased in November, except for the durables index. A comparison with the y/y performance in October shows that the growth of the non-durables and semi-durables indices decelerated, whereas the growth of the services index speeded up slightly. The double-digit annual contraction of the durables index eased modestly in November.

Net tourist expenditure rose by 47.4% y/y in November, decelerating from 52.9% y/y growth in October. In m/m terms, it climbed 1.8% in the 11th month of 2024.

The consumer confidence index increased to 56.9 in November from 56.0 in October. The index has been rising m/m for two consecutive months. Some of the positive factors affecting consumer confidence in November included better-than expected GDP growth in Q3; economic stimulus measures implemented by the government; rising number of foreign tourists; and robust growth of merchandise exports in October.

In December, the BOT announced its new macroeconomic projections. The central bank forecasts that private consumption growth will decelerate from 7.1% in 2023 to 4.5% in 2024 and 2.4% in 2025.

• Merchandise trade surplus widens 4.7 times y/y
• Combined balance of the other CA components becomes slightly positive
• CA surplus jumps 2.1 times y/y in Jan-Nov

The current account registered a surplus of USD 2.0bn in November, up from USD 659.3mn in October and reversing a deficit of USD 511.7mn in Nov 2023, the BOT said. In the y/y comparison, the merchandise trade surplus rose, and the combined balance of the services, primary income and secondary income accounts turned slightly positive.

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The goods surplus jumped 4.7 times y/y to USD 2.0bn in November. Exports rose by 9.1% y/y to USD 25.4bn, and imports climbed 2.3% y/y to USD 23.4bn. The breakdown of exports provided by the BOT showed that excluding gold, exports rose by 7.3% y/y in November. Agriculture, fishery and manufacturing exports all increased y/y, by 4.9%, 5.1% and 5.7% respectively. Within manufacturing, the highest y/y increases were reported for petroleum related exports (up 25.7%) and electronics exports (up 22.3%). Automotive exports rose by 4.1% y/y in November.

The combined balance of the services, primary income and secondary income accounts was a surplus of USD 11.5mn in November, reversing a deficit of USD 943.6mn in Nov 2023. The number of international tourists rose by 19.5% y/y to 3.15mn in the month.

The current account registered a surplus of USD 9.4bn in Jan-Nov, up 2.1 times y/y. The merchandise trade surplus increased by 4.0% y/y to USD 17.4bn in Jan-Nov, as exports grew by 5.6% y/y and imports climbed 5.7% y/y.

The combined balance of the services, primary income and secondary income accounts was a deficit of USD 8.0bn, narrower than a deficit of USD 12.3bn in the first 11 months of 2023. The number of foreign tourist arrivals rose by 28.2% y/y to 31.92mn in Jan-Nov.

In December, the BOT announced its new macroeconomic projections. The central bank forecasts that Thailand's current account surplus will increase from USD 7.4bn in 2023 to USD 9.0bn in 2024 and USD 15.0bn in 2025. In December, the OECD predicted that the country will have current account surpluses of 2.8% of GDP in 2024, 3.9% in 2025 and 4.2% in 2026, up from 1.4% in 2023.

• Reading roughly in line with consensus forecast
• Imports edge up 0.9% y/y
• Commerce ministry forecasts export growth of 5.2% in 2024, 2-3% in 2025

Exports increased by 8.2% y/y to USD 25.6bn in November, decelerating from 14.6% y/y growth in October, the commerce ministry said on Dec 25. Exports have been rising y/y for five consecutive months. The latest reading compares with a Reuters poll forecast of an 8.4% increase. Real sector exports - excluding gold, oil-related products and weaponry - rose by 7.0% y/y. The growth was driven mainly by technology-related products, especially computers, equipment and components.

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Exports of agricultural and agro-industrial products increased by 5.7% y/y in November, which was the fifth consecutive month of growth. The former rose by 4.1% y/y, whereas the latter climbed 7.7% y/y. Exports of industrial products increased by 9.5% y/y in November, and this was the eighth consecutive month of growth.

Exports to primary markets rose by 8.3% y/y in November. Positive y/y growth was reported for exports to the US (9.5%), China (16.9%), the EU 27 (11.2%) and CLMV (21.0%), whereas exports to Japan and ASEAN 5 fell by 3.7% and 1.5% respectively.

Imports rose by 0.9% y/y to USD 25.8bn in November, decelerating from 15.9% y/y growth in October. The merchandise trade balance was a deficit of USD 224.4mn, some 88.4% narrower y/y.

The foreign trade deficit widened by 34.7% y/y to USD 6.3bn in Jan-Nov. Exports rose by 5.1% y/y to USD 275.8bn in Jan-Nov, whereas imports climbed 5.7% y/y to USD 282.0bn.

Exports are expected to grow by 5.2% in 2024, according to Poonpong Naiyanapakorn, director-general of the Trade Policy and Strategy Office, as quoted by the Bangkok Post. The commerce ministry projects that exports will increase by 2-3% in 2025.

• Revenue drops by 6.5% y/y
• Expenditure climbs 29.8% y/y
• Deficit financing amounts to THB 270.0bn

The government's budgetary balance on cash basis was a deficit of THB 505.6bn in Oct-Nov, which compares with a deficit of THB 276.2bn in Oct-Nov 2023, the finance ministry said on Dec 24. Thailand's fiscal year begins on Oct 1. The revenue collection fell by 6.5% y/y to THB 378.4bn in the first two months of FY 2025. Expenditure increased by 29.8% y/y to THB 884.1bn. The deficit financing amounted to THB 270.0bn and the treasury reserve stood at THB 275.8bn at end-November.

We calculate that revenue fell by 4.8% y/y to THB 173.3bn in November alone, whereas expenditure soared by 38.9% y/y to THB 297.2bn. One reason for the high y/y growth of expenditure must be a low base - we remind that there was a seven-month delay in the approval of the FY 2024 budget by the parliament. The delay weighed on spending in the respective months. Furthermore, the new government of PM Paetongtarn Shinawatra has vowed to accelerate spending in FY 2025 in a bid to stimulate the economy. The robust expenditure growth in Oct-Nov suggests a solid contribution of public spending to GDP growth in Q4, in our view.

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• The manufacturing PMI dipped below the 50-point threshold for the first time in three months, posting 49.8 in December
• Output and new orders growth continued to decelerate, marked the weakest growth in the three-month
• Business sentiment in December dropped significantly, hitting its lowest level since May 2023

The manufacturing PMI dipped below the 50-point threshold for the first time in three months, registering 49.8 in December compared to 50.8 in November. This indicates manufacturing sector lost its growth momentum in the last month of the year. The slowdown was largely attributed weaker growth in output and new orders, a significant drop in business confidence, and continued reductions in employment.

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Although output and new orders both increased in December, growth was only marginal and marked the weakest in the three-month period of expansion for these indicators. Some firms reported improved customer demand, while others highlighted deteriorating market conditions. While total new orders continued to grow, new export orders fell for the second consecutive month at a relatively sharp pace.

Anticipation of increased output in the coming months led to a resurgence in purchasing activity, which grew at its fastest pace in four months. However, firms remained hesitant to stockpile excessively, resulting in reductions in inventories of both raw materials and finished goods.

Weak growth in news order translate into lower employment. Manufacturers reduced their workforce for the third consecutive month by year-end. Although modest, the rate of job cuts was the steepest since August. The continued reduction in employment, led to an accumulation of backlogged work in December. This extended the period of rising work backlogs to seven months, though the latest increase was the smallest in this sequence.

Regarding prices, inflationary pressures rose in December, with both input and output prices increasing at a faster pace compared to November. According to survey respondents, material shortages and exchange rate fluctuations contributed to rising input costs, with oil and metals among the items experiencing price hikes. In response, firms raised output prices for the eighth consecutive month, with the pace of increases reaching its fastest since July and surpassing historical averages.

The report also pointed out that global market uncertainties had eroded confidence in production prospects for the year ahead. Business sentiment in December dropped significantly, hitting its lowest level since May 2023.