The Thai economy is set to expand by only 3% this year, well below the Bank of Thailand's forecast of 3.6%, due to rising risks of a deeper slowdown in the global economy stemming from increasing uncertainty and banking stresses in the US and Europe, said Fitch Solutions.
In its Outlook for Thailand report, the research unit of Fitch Group projects the country's economic recovery to pick up pace gradually over the coming quarters, driven mainly by a recovery in the tourism sector and private consumption.
However, real GDP growth is expected to only accelerate slightly to 3% in 2023, versus 2.6% last year.
"With rising risks of a deeper slowdown in the global economy due to increasing uncertainty and banking stresses in the US and Europe, risks to the Bank of Thailand's economic growth projections are likely increasingly weighted to the downside," the report noted.
"As such, we expect the central bank to soon adopt a neutral stance to avoid derailing Thailand's economic recovery, once growth figures come in below their expectations," it added.
Fitch Solutions has also revised down the country's inflation this year to an average of 2.7%, from 3.2% targeted earlier, and a sharp drop from 6.1% in 2022.
"We now expect a sharper moderation in headline inflation to 2.7% by end-2023, down from the previous forecast of 2.9%, following a sharper than expected moderation in inflation since the end of 2022," it noted.
Therefore, Fitch anticipates the central bank to hike interest rates by another 0.25% at its meeting on May 31 before leaving rates on hold for the rest of the year.
"Although inflation eased to 3.8% year-on-year in February from 5.0% in January, continuing its broad downtrend, the monetary policy statement by the Bank of Thailand showed that policymakers are more concerned about upside risks to inflation rather than growth," the Fitch report stated.
Indeed, the statement pointed out that "persistently high inflation remains a risk" and that "the committee will continue to close monitor price developments".
Fitch expects inflation in March and April to remain above the central bank's target of 1-3%, which should prompt additional marginal tightening at the next meeting.
"At the same time, leading indicators suggest Thailand's economic recovery remains on track, which should provide room for policymakers to normalise interest rates further," noted the report.