Tourism will be the key engine supporting Thailand's economic recovery, replacing the slowing export sector, says the Economic Intelligence Center (EIC), a research house under Siam Commercial Bank.
The EIC has upgraded its forecast for foreign tourist arrivals in 2022 to 7.4 million, up from 5.7 million, but the number is still far below the pre-pandemic tally of almost 40 million in 2019.
If foreign tourist arrivals continue to double annually for the next few years, it should be enough to make a significant contribution to the Thai economy, said EIC chief economist Somprawin Manprasert.
A clearer picture of the global economy will become apparent next year, including whether recession is occurring in key economies such as the US, Europe, and China, he said.
Given factors such as the surging inflation rate, the Russia-Ukraine war, and China's lockdown measures as part of its zero-Covid policy, the global economy is expected to slow down in 2023, which will affect Thai exports.
On average, research houses worldwide predict a global economic growth rate of 3.2% this year, though some recently lowered their forecasts, said Mr Somprawin.
He said the EIC has not made an economic forecast for 2023, but next year Thai export growth is expected to recede from the 2022 prediction of 5.8%, which was downgraded from an earlier estimate of 6.1%.
The EIC upgraded its 2022 Thai GDP growth forecast to 2.9% from 2.7% as the country's reopening is facilitating a rebound in the tourism and service sectors.
In addition, the EIC predicts the country's headline inflation rate will peak in the third quarter this year at more than 7%, exceeding the central bank's inflation target of 1-3%, then begin to gradually decline. The research house forecasts a full-year inflation rate of 5.9%.
The EIC expects the Bank of Thailand's Monetary Policy Committee (MPC) to increase its policy rate by 25 basis points at its next meeting in August.
"After a policy rate hike in August, we forecast the MPC will wait and see to monitor the economy," Mr Somprawin said. "We do not believe the MPC will raise rates consecutively as it takes time to analyse the effects of the initial increase."
The EIC believes the US Federal Reserve will raise its policy rate by 50 basis points on three occasions this year. As a result, the Fed Funds rate will reach 3% by the end of this year.
With aggressive rate hikes from the Fed and the strengthening dollar, the EIC forecasts the baht will weaken to 34.5-35.5 baht against the greenback. However, the baht is expected to bounce back slightly to 33.5-34.5 baht by the end of this year, supported by an economic rebound and an improving current account balance thanks to an increase in foreign visitors.
Thailand's economy continues to recover from the pandemic, supported by a comprehensive policy package and an accelerated vaccination programme, according to preliminary findings by IMF staff who recently visited the country to assess economic and financial developments.
Real GDP grew by 1.5% in 2021 and is projected to expand by about 3% in 2022, according to an IMF statement on June 13. The recovery is uneven across sectors as the economy is still operating below its potential. Headline inflation is expected to average 6.1% in 2022, driven by high energy prices.