Tourism and Infrastructure to Boost Thailand’s Economy This Year: BOT Governor

By Orathai Sriring and Simon Webb

BANGKOK – According to the central bank governor, Thailand’s record tourist arrivals and increased public works spending are expected to counterbalance weak domestic demand and global economic challenges, positioning Southeast Asia’s second-largest economy for a growth rate of 3.1 percent this year.

The economy, heavily reliant on trade, has faced significant challenges due to the worsening global economic climate and declining export demand. The Bank of Thailand (BOT) anticipates that exports will decrease for the fourth consecutive year in 2016.

Tourism has emerged as a bright spot in Thailand’s economy, and government spending on major infrastructure projects is poised to provide a much-needed boost later in the year, as noted by BOT Governor Veerathai Santiprabhob.

“We are on track,” Veerathai stated in a recent interview. “We need to keep an eye on the secondary effects of Brexit. Certain areas of our economy have been affected by China’s economic transition. However, we expect enhanced government spending on major projects in the latter half of the year.”

The central bank forecasts a 3.1 percent growth rate for the economy this year, with a projected decline in exports of 2.5 percent. Last year, the economy grew by 2.8 percent, a recovery from the 0.8 percent growth in 2014, which nearly pushed the country into recession amid political unrest.

In the first quarter, the Thai economy saw a growth of 0.9 percent compared to the previous quarter and 3.2 percent year-on-year.

Since the military took power in a May 2014 coup, there have been promises of substantial infrastructure projects, but spending has lagged. However, Veerathai indicated that spending is expected to increase now that these projects are being auctioned off, with further growth anticipated in 2017.

Veerathai mentioned that the central bank is prepared to ease monetary policy if conditions worsen significantly but emphasized that there is currently no urgent need to lower interest rates, as liquidity in the market remains sufficient.

“There are limits to what monetary policy can achieve in stimulating economic growth,” he explained. “We need to focus on supply-side policies, and I believe the government is fully aware of this. The fiscal engine is moving forward.”

The benchmark one-day repurchase rate has been held at 1.50 percent since April 2015, just slightly above the record low set during the global financial crisis.

The next policy review is poised for September 14, with increasing expectations for a rate cut due to sluggish economic growth and rising pressure on the baht.

Veerathai anticipates headline inflation to return to the bank’s target range of 1-4 percent by the year’s end, following a recent uptick after low energy prices drove down prices in 2015.

While there are no immediate systemic risks related to investment flows from Thailand’s low interest rates, the bank is monitoring certain risk areas as investors seek higher yields.

High household debt remains a concern, but Veerathai predicts it will decrease as consumers repay loans for vehicles that were subsidized by the previous administration. Household debt currently exceeds 80 percent of GDP, which has limited domestic demand.

The central bank is also wary of currency fluctuations affecting the economy, given that the Thai baht has appreciated by 3.4 percent against the dollar this year, posing challenges for exporters.

Although Veerathai refrained from commenting on the impact of a recent referendum, he noted that currency, bond, and equity markets had shown little reaction in the lead-up to the vote.

However, he highlighted that political uncertainty has restricted investment in the country, offering these insights ahead of the referendum.

Thailand recently voted in favor of a draft constitution, reflecting the largest test of public opinion since the coup.