The Bank of Thailand's policy consideration is focused on ensuring a smooth landing for the economy as tourist spending and exports have been lower than expected, according to the central bank governor.
Speaking yesterday at the Thailand Focus 2023 conference, Sethaput Suthiwartnarueput said the economic recovery is continuing, though tourism spending and exports are weaker than anticipated.
The tepid tourist spending is attributed to the slow recovery of the Chinese market.
The forecast for arrivals remains 29 million for this year, rebounding towards the nearly 40 million recorded in 2019, but visitors from new source markets are spending less than those travelling from the mainland, he said.
"The economy returned to pre-Covid levels of growth in the first quarter this year and consumption has been steady at more than 5%," said Mr Sethaput.
"But the picture is not all wine and roses. Exports are weaker than expected, mainly because of China's slowdown, and tourism spending has been softer."
The bank expects economic growth will be slightly lower than its original forecast of 3.6%, he said. A revised GDP figure is scheduled for publication next month, said Mr Sethaput.
He brushed aside suggestions of deflation, even though headline inflation has declined faster than expected.
"The recent results for headline CPI [consumer price index] were lower than our forecast. However, this is a result of temporary factors: base effects and some government subsidies for electricity prices. We expect inflation to gradually pick up and move within our target range," said Mr Sethaput.
"We do not see any kind of deflation risk in Thailand. The softness in inflation is mostly supply-driven. We do not see broad-based weakness on the demand side or weak consumption. Going forward, there are still some upside risks to inflation from the effects of El Niño, which could have an upward impact on prices, particularly for food, which is a big chunk of consumption."
He said the economy is now "approaching the landing" and the central bank's policy objective is to get the landing right.
"As we are getting closer to that landing point, the bank needs to focus on medium-term objectives by first trying to ensure that economic growth returns to our long-term potential, which is in the 3-4% range given our structural features and demographics," said Mr Sethaput.
He said inflation remains sustainably within the bank's target range of 1-3%.
"Another important consideration is trying to ensure the policy rate is appropriate and does not lead to financial imbalances," said Mr Sethaput.
For example, he said the interest rate was previously capped at a very low level for a long time, which allowed imbalances to build up, particularly household debt, which is now 90.6% of GDP, while the international benchmark suggests 80%.
In a related development, Fitch Solutions subsidiary BMI lowered Thailand's growth forecast from 3% to 2.8% for 2023. The downgrade is below both consensus expectations of 3.6% and the 2010-19 average of 3.6%.
"Thailand's second-quarter real GDP growth of 1.8% year-on-year was much weaker than we expected," the London-based research house said in a statement. "Looking ahead, we think Thailand's economic rebound will be lacklustre because of tight credit conditions, political uncertainty and external headwinds."