Thailand's economy gained further traction in 2017, but has not reached its growth potential, while an accommodative monetary policy stance is "necessary" to shore up domestic demand going forward, says the Bank of Thailand.
"Although the macroeconomic outlook is clearly improving, with signs of small and medium-sized enterprises in many sectors beginning to gain benefits, the factors underpinning domestic demand, especially employment conditions, remain soft," the central bank's Monetary Policy Committee (MPC) said in its latest edited minutes.
Together with the effects of elevated household debt, these factors have resulted in relatively low demand-pull inflationary pressures, the minutes said.
"In this regard, the committee views that an accommodative monetary policy stance is still necessary to foster stronger domestic demand going forward," they said.
The seven-member rate-setting panel stood pat on its 1.5% policy interest rate throughout 2017 to help support the domestic economic recovery amid low inflation and rising delinquencies in the consumer loan segment.
The economy grew by 4.3% year-on-year in the third quarter -- the strongest growth in 18 quarters -- after expanding by 3.8% in the second quarter and 3.3% in the first quarter, according to the National Economic and Social Development Board. The expansion was driven by exports, personal spending and private investment.
In the first nine months of 2017, the economy grew by 3.8% year-on-year.
The MPC has upgraded its 2018 GDP growth outlook from 3.8% to 3.9%. The upward revision is attributed to continued improvements in merchandise exports and tourism, underpinned by growth among Thailand's trading partners.
There was stronger than expected growth in external sectors, while domestic demand is likely to expand at a slightly slower pace than previously predicted because of the temporary postponement of some infrastructure investment projects, the minutes said.
"Risks to the growth projection are deemed balanced given increased upside risks from the stronger growth among the economies of [Thailand's] trading partners," the minutes said.
Other upside risks include public infrastructure investment and the spending of funds accumulated by local administrative organisations that could be implemented faster than expected, the minutes said.
But downside risks persist, mainly from the external front, such as the US economy and its trade policies, as well as geopolitical risks, with weaker than expected private demand identified as the domestic downside risk which could derail purchasing power, the minutes said.
Export growth is expected to decelerate this year because of the potential slowdown in global trade and oil prices, which had earlier grown strongly, as well as last year's high base, said the minutes.
"While the Thai economy is gaining traction, growth has yet to trickle down sufficiently and in a broad-based manner to employment and household income," the minutes said.
"This is seen by a dip in employment within the non-agricultural sectors, especially low-paid, day labourers in the manufacturing and construction sectors, and self-employed business owners."
Overall financial stability, meanwhile, remains sound, but there are still pockets of risks resulting in the build-up of vulnerabilities in the financial system going forward, they said.
"For example, underpricing of risks that stem from search-for-yield behaviour in the prolonged low-interest-rate environment. In particular, there appear to be signs of broad-scale risks, including growing household debt, issuance of unrated bonds, investments in non-core business activities by large corporations and rapid growth of foreign investment funds."
In related news, Government Savings Bank's research centre expects the Thai economy to grow by 4.6% in 2018, attributed to exports and tourism expansion, together with growth in public and private investment. Downside risks include fund flow volatility, high household debt, a decline in farm sector income, geopolitical risks and uncertainty over the general election.
Thailand's outstanding public debt as of Nov 30 stood at 6.33 trillion baht or 41.7% of GDP, with 6.03 trillion classified as domestic debt and 297 billion external debt, said the Public Debt Management Office.