Rising overseas demand for goods and services pushed Thailand's GDP to a five-year high in 2017, with business-friendly fiscal policies and planned spending on infrastructure expected to support further expansion in 2018.
The economy improved over the course of last year, recording year-on-year growth of 3.3% in the first quarter, 3.8% in the second and 4.3% between July and September, the largest quarterly jump since 2013, according to the National Economic and Social Development Board (NESDB).
It attributed the improvement to a rise in exports, consumption and private investment, coupled with improved returns from agriculture and manufacturing.
The positive results prompted the NESDB to revise upward its forecast for full-year growth in 2017 to 3.9%, at the upper end of the range of 3.5% to 4% it had set earlier, and slightly above the 3.8% projected by the Bank of Thailand and the IMF. The NESDB will release official fourth-quarter and full-year GDP figures in the third week of February.
Exports rebound: Significantly higher levels of international sales underpinned growth as 2017 went on, with the value of exports in US dollar terms rising by 6.8% year-on-year in the first quarter, before expanding by 7.9% in the second quarter and 12.5% in the third.
The value of agricultural exports jumped by 20.5% between January and March, 19.2% in the second quarter and 28.4% in the July-September period -- the latter being the highest growth recorded in two years. Manufacturing products also performed well, expanding by 5.9% in the first quarter, 12.5% in the second and 9.6% in the third, on the back of more favourable global economic conditions.
Full-year export growth has been estimated at 8.6% in 2017, following 0.1% growth in 2016 and three consecutive years of contraction before that.
Interest rates and inflation steady: Despite the faster pace of growth, the Bank of Thailand left its benchmark one-day repurchase rate at 1.5% throughout 2017. The rate has remained at 25 basis points above its all-time low since April 2015.
In notes released following a review in late November, the central bank's Monetary Policy Committee appeared to rule out any short-term increases, as well as any further reductions in the rate.
"Recent below-target inflation was mainly due to supply-side and structural factors; further monetary policy accommodation therefore would not be appropriate and could result in the buildup of vulnerability in the financial system," it concluded.
The central bank is expected to maintain its accommodative benchmark rate well into 2018 based on muted inflation, given the prospect of interest rate increases from the US Federal Reserve, said Chavinda Hanratanakool, chief executive of Krungthai Asset Management.
"The cost of business will surge if interest rates go up," she told Oxford Business Group (OBG). "Even with the gap closing for 1.5%, the policy rate may remain the same."
Indeed, inflation also closed out 2017 below the central bank's targeted range of 1-4%. The consumer price index rose just 0.7% on average over the year.
Infrastructure plans drive new growth: The government's Thailand 4.0 programme, which aims to shift the economic focus away from production and towards services and innovation, is set to be a major driver of new growth in 2018.
Increased spending on supporting infrastructure, research and development, technology and value-added manufacturing, combined with incentives that include tax holidays and exemptions on import duties for many industrial inputs, are likely to spur private-sector investment.
Thailand 4.0 is also expected to improve the country's regional competitiveness, with the aim of deterring businesses from relocating to more labour-intensive manufacturing bases such as Vietnam and Cambodia.
Competitiveness will be enhanced by the acceleration of transport projects in 2018, with ground to be broken on three rapid transit lines in the capital. In addition, the government has budgeted 745 billion baht (US$22.8 billion) for more than 100 transport projects in the Eastern Economic Corridor (EEC), according to Transport Minister Arkhom Termpittayapaisith.
"The idea is to develop the infrastructure for air and sea, and make the travelling time between the capital and the EEC shorter by building the Bangkok-Rayong high-speed rail line," he told OBG.
Household debt a concern: Domestic consumption is expected to rise in 2018, helped by tax breaks that were offered on year-end shopping after the year-long mourning period for late King Bhumibol ended on Oct 27.
According to the NESDB, private consumption expanded by 3.1% in the third quarter last year, compared with 3% in the second quarter and 3.2% in the first.
Any further increases in consumer spending, then, should have a positive impact across several sectors, including manufacturing, retail and tourism.
However, high levels of household debt could put a brake on consumer expenditure. The ratio of household debt to GDP was around 77% in mid-November, according to central bank data, down slightly from a high of 80% in 2015, but still weighing on purchasing power.
Spending could also be affected by higher fuel inflation in 2018 if oil prices move upward.
This Thailand economic update was produced by Oxford Business Group. Written by Rey Davis-Tuplano, editorial manager.