The Bank of Thailand has unveiled a more positive economic growth forecast for this year, expecting the government's tax rebates on cars, income tax reduction and wage hike to boost consumption and investment in machinery and factories.
The central bank expects exports will begin to improve in the second half of the year, in line with a more stable world economy.
Advancing public debt resolution has lowered the chances of Greece leaving the euro zone, while US success in avoiding tax increases and spending cuts have brightened the global economic outlook.
Assistant governor Paiboon Kittisrikangwan said the central bank has revised up its economic growth forecast to 4.9% from 4.6% and maintained the inflation forecast at 2.8%. Economic growth growth next year has been put at 4.8% and inflation at 2.6%.
The improved growth outlook is driven mainly by private investment - boosted by unfinished post-flood rehabilitation - expansion to serve stronger consumption demand, machinery investment to substitute for the labour shortage and offset the daily wage hike, and expansion to serve demand from neighbouring countries.
Government investment will also boost private investment, but the forecast does not assume public investment in large-scale infrastructure projects.
"We expect the economy will grow better than expected thanks to strong domestic demand, especially from private investment," said Mr Paiboon.
"The government's first-time car buyer tax rebate reached 1.25 million units, which will help to stimulate consumption in 2013."
He said the central bank expects the crude price will be stable this year, while the increase in prices of other commodities will be lower than expected.
Inflationary pressure from the demand side has increased along with domestic demand, but inflationary pressure from prices has remained benign. The hike in the daily minimum wage to 300 baht nationwide from Jan 1 will result in lower-than-expected inflation.
"Inflation has stabilised in the business sector. The effect of the minimum wage increase since last April on prices has been limited. High competition among businesses will result in difficulty for businesses to adjust prices of their goods," said Mr Paiboon.
The wage hike may cause some small and medium-sized enterprises whose profit margins are low to close down, but the tight labour market will help to absorb laid-off workers, said Mr Paiboon.
He said the central bank expects the volatility of capital flows and acceleration of credit growth and household debt to pose important risks to financial stability.