Standard Chartered Bank Thai expects the economy to gain momentum and reach its growth potential of 4.3% by 2018, underpinned by hefty state investment and private spending.
Usara: Multiplier effect from continuous spending
With the government's clear plan to invest in infrastructure megaprojects, public investment will rise by an estimated 11.2% this year, boosting GDP growth to 3.5%, said senior economist Usara Wilaipich.
The bank forecast that Thailand's economic growth for last year was 3.3%.
Both the domestic economy and public investment have picked up from last year, supported by progress of the public investment plan. There are 33 transport investment projects with a total budget of 893.7 billion baht in the government's pipeline this year.
The Fiscal Policy Office recently revised up its forecast for Thai economic growth to 3.6% this year from the 3.4% previously projected on the back of ramped up investment from both the government and state enterprises. The 190-billion-baht supplementary budget for the 2017 fiscal year, largely to be earmarked for 18 provincial clusters, will further provide a boost.
The Finance Ministry's think tank also estimates that state enterprise investment will rise to 257 billion baht in 2017 from 66.5 billion last year.
The raft of public investment will help shore up investor confidence and prompt the private sector to follow suit, she said.
The research house predicts private investment growth of 2.6% this year.
"Even though we have waited a while for public investment, it will start coming at a fast clip and continue into the following years, creating a multiplier effect," said Ms Usara. "With the fast clip of the economic recovery, we expect the Thai economy will reach its growth potential next year."
The projection is based on the assumption of two hikes in the US Federal Reserve policy rate this year, which are expected to occur in June and December.
The US rate increase will not have a significant impact on the country's foreign capital flows and local currency due to Thailand's low foreign debt at 0.6 times of international reserves and low foreign bond holdings -- a mere 6.9% of the total bond market.
Foreign bond holdings in Indonesia and Malaysia are about 30%.
With Thailand's strong financial position and solid fundamentals, Standard Chartered forecast the baht will hit 36 to the dollar by year-end before climbing to 34 at the end of 2018.