The Thai economy is projected to continue its post-pandemic recovery with expansion of 2.8% this year and 3.7% in 2023, according to the International Monetary Fund (IMF).
This year's GDP growth comes on the heels of 1.5% expansion in 2021 and a 6.2% contraction in 2020, according to Corinne Delechat, division chief in the IMF's Asia and Pacific Department and mission chief for Thailand.
The rebound has been driven by strong private consumption and the recovery of tourism. Relaxation of Covid-19 restrictions, improved consumer confidence and fiscal stimulus have been the main engines for private consumption.
Tourism has picked up following the relaxation of border controls, with 5.8 million international arrivals from January-September 2022, compared with 400,000 for the same period in 2021.
"We expect the growth momentum to continue in 2023, with GDP expanding at 3.7% on the back of a continued recovery in tourism, in spite of weakening global demand," Ms Delechat said.
The IMF forecast of 2.8% Thai GDP growth in 2022 has been unchanged since July. Private consumption and tourist arrivals are expected to remain strong for the rest of the year, although external demand is projected to weaken.
The growth projection for 2023 fell by 0.3 percentage points to 3.7%. The revision was driven by lower expectations for external demand from trading partners, she said.
According to the IMF's World Economic Outlook October 2022, the global economy continues to face steep challenges, shaped by the lingering effects of the Russian invasion of Ukraine, a cost-of-living crisis caused by persistent and broadening inflation pressures, and the economic slowdown in China.
In terms of key challenges facing Thailand, Ms Delechat said the country's economy has yet to fully recover to pre-pandemic levels.
Inflation has been mainly driven by rising global food and energy prices, particularly since the onset of the war in Ukraine, and reached its highest level in over a decade in August 2022.
Delechat: Recovery driven by tourism
Core inflation has also risen recently, though both headline and core inflation decelerated somewhat in September.
She said there are risks inflation could further increase or prove persistent: the baht has depreciated by around 13% in 2022, which implies a higher price for imports that could further exacerbate inflationary pressures.
At the same time, the prospects for the global economy have worsened. The war in Ukraine has led to a significant downward revision in euro-zone growth for 2023. There are growing fears of a recession in the US, given the country's rapid monetary policy tightening, according to the IMF report.
Additionally, the zero-Covid policy in China and worsening property market there are weighing on growth in that country.
All these factors are likely to reduce external demand for Thai exports. Recent data already points to a deceleration in merchandise exports from Thailand.
However, tourism arrivals continue to improve thanks to the relaxation of international travel restrictions, said Ms Delechat.
She said an abrupt tightening of global financial conditions poses a risk for large-scale capital outflows and disorderly market conditions.
"While we have seen a rapid and continuous depreciation of the baht in 2022, forex market conditions appear orderly so far. The Bank of Thailand has been monitoring the situation closely and should continue to do so," Ms Delechat said.
She said to face these challenges, policymakers need to use all the tools at their disposal in an agile and coordinated manner.
The Bank of Thailand increased interest rates by 0.5 percentage points from August to September, a gradual pace mindful of the nascent economic recovery, but Ms Delechat said a faster monetary policy normalisation could be needed given the risks of wage and generalised price pressures from second-round effects of higher energy prices, as well as exchange rate depreciation.
Fiscal policy has been supportive as large Covid-19 stimulus packages are gradually rolled back. She said measures to protect vulnerable groups from increased living costs were welcome, but could be better targeted. In particular, costly universal energy subsidies should be gradually phased out, said Ms Delechat.
If policymakers are concerned about baht depreciation adding to inflationary pressures, she said the best answer would be to raise interest rates faster, allowing the exchange rate to float freely to absorb shocks.
However, foreign exchange interventions should be used only if a sharp and disorderly exchange rate depreciation threatens to de-anchor inflation expectations, while macro-prudential tools should guard against systemic risks, said Ms Delechat.
REFORMS NEEDED
She said before the pandemic, Thailand had been growing slower than peer countries, reflecting low productivity growth, lacklustre human and physical capital accumulation, high household debt, and weak social safety nets for a rapidly ageing population.
Over the medium term, multifaceted transformational reforms are needed to improve productivity and help Thailand face post-pandemic challenges from a position of strength, said Ms Delechat.
She said coordinated efforts to upskill Thailand's labour force, including older people, would facilitate reallocation of labour to expanding sectors and mitigate job losses among the elderly due to automation and digitalisation. Moreover, the effort would help reduce income inequality, which is seen as a prerequisite for sustainable and inclusive growth.
"Increasing investments in digital and climate-resilient infrastructure and R&D will be key in enabling Thailand to capitalise on the growth opportunities of the digital and green transformations," Ms Delechat said.
Stepping up efforts to enhance regional trade and financial integration would diversify Thailand's markets for foreign trade and capital flows, thus making the economy more resilient to external shocks, she said.
Ms Delechat said Thailand's focus on the green economy and green sources of growth was welcome.