Thailand's GDP growth is unlikely to increase in the second half of this year as anticipated by the central bank, according to the newly-appointed chairman of the National Economic and Social Development Council (NESDC), the state planning agency.
Speaking after a seminar held on Thursday entitled "Surfing a Sea of Opportunities Amid Geopolitical Tides", hosted by Kiatnakin Phatra Financial Group (KKP), Supavud Saicheua, chairman of the NESDC and an advisor to KKP, said the tightening monetary policy of the Bank of Thailand's (BoT) Monetary Policy Committee (MPC) has impacted access to loans for individuals and small and medium-sized enterprises (SMEs), as well as increasing financial costs for borrowers.
This scenario has dampened purchasing power, economic activity, along with the country's GDP growth rate, he said.
The NESDC reported a GDP growth rate of 1.5% year-on-year for the first quarter of 2024, while the central bank anticipates GDP growth to rise to 2%, 3% and 4% in the second, third and fourth quarters, respectively.
However, Mr Supavud suggests the economic growth rate will not reach 3% and 4% in the third and fourth quarters as forecasted by the central bank.
He attributes his assessment to the central bank's tight monetary policy, which has pressured the country's economic expansion post-pandemic.
"I personally believe the central bank should have cut its policy rate last year, but it did not. As a result, the tightening monetary policy has caused the country's GDP growth to be lower than expected this year. The current policy rate of 2.5% is too high and does not support economic growth," Mr Supavud said.
"In the five years before the pandemic, the real interest rate was at 1.2% with the country's GDP growth rate at 3% and an inflation rate of 0.36%. So, the policy rate should be cut," Mr Supavud said.
From 2010 to 2014, Thailand's GDP growth averaged 3.28% per year, in alignment with a global GDP growth rate of 3.28%, while inflation gauged by the Consumer Price Index (CPI) averaged 2.28% annually. Between 2015 and 2019, the country's GDP growth rate averaged 3.44%, compared to a global GDP growth rate of 3.06%, with inflation in the country decreasing to an average of 0.36% per year.
Mr Supavud said despite the government's digital wallet implementation and the cancellation of the energy price subsidy, these factors are not expected to significantly pressure inflation rates higher.
He also noted that many businesses in Thailand, both local and international, continue to close due to high costs and sluggish economic growth, a trend expected to persist into the second half of the year and into next year. Additionally, the asset quality of local SMEs and individuals has continued to weaken, he added.
Special mention (SM) loans and non-performing loans (NPLs) for SME borrowers make up around 20% of the total outstanding loans in the banking industry. This poses a risk that is expected to contribute to higher risks next year, he said.
"Tightening monetary policy has also led to slower loan growth in the banking sector. The slow expansion of loans is not due to debt repayment -- if the country's economic outlook improves, businesses should continue to borrow rather than repay debt," the veteran economist noted.
Nevertheless, Mr Supavud predicts that the US Federal Reserve will cut its policy rate before the US presidential election in November this year. He expects Donald Trump to win the election, with his policies potentially accelerating the US inflation rate. Consequently, the Fed may maintain its policy rate rather than implement a rate cut next year, contrary to market expectations, according to Mr Supavud.
