BANGKOK- Thailand’s economy is on a solid path to recovery and showing resiliency, helped by good revenue collection and a normalization of its tourism sector, while inflation should come in below 3 percent this year, its finance minister said on Monday.
Southeast Asia’s second-largest economy expanded faster than expected in the first quarter of this year due to a revival in its vital tourism sector.
The economic recovery has been supported by a comprehensive and timely policy mix of fiscal and monetary policies, which respectively should continue to be implemented proactively and prudently, Arkhom Termpittayapaisith told a World Bank forum.
While predicting inflation would come in below 3 percent this year, inside the central bank target range of 1 percent to 3 percent, Arkhom said he could not tell whether there would be a reduced need for raising interest rates.
“There is still uncertainty over energy prices and US issues,” he told reporters on the sidelines.
On Monday, the finance ministry in a statement said the economy in April was supported by stronger tourism, higher farm production and falling inflation, while Thailand was well-positioned to withstand global volatility.
Arkhom said revenue collection also showed strong signs of recovery in the 2022 fiscal year and was expected to surpass the pre-pandemic level in the 2023 fiscal year.
“I’m confident that Thailand is firmly heading towards full recovery and soon return to its vibrant economy,” he added.
The finance ministry forecast economic growth of 3.6 percent this year, after a 2.6 percent expansion last year.
The World Bank in a statement on Monday said Thailand now needed to address growing spending needs, while keeping public debt under control.
Thailand’s public debt rose due to the pandemic response, but overall fiscal risks remain manageable, the bank said.
The Bank of Thailand (BOT) is expected to raise its key interest rate by 25 basis points (bps) on Wednesday and then hold it at that level for the rest of this year and the next, marking an end to a modest tightening cycle, a Reuters poll found.
Unlike most economies in Southeast Asia, inflation in Thailand has already returned to the central bank’s target range of 1 percent-3 percent, and the commerce ministry expects it to ease sharply in May due to a high base in 2022 and lower fuel prices.
But Governor Sethaput Suthiwartnarueput said last month inflation risks remained and needed monitoring, suggesting the central bank’s policy moves will be data-dependent.
A strong majority of economists polled, 17 of 22, expected the BOT to raise its benchmark one-day repurchase rate by 25 bps to 2.00 percent at its May 31 meeting. The remaining five forecast no change.
If the majority view prevails, interest rates will be twice as high as they were before the COVID pandemic.
“To make sure inflation doesn’t slip away…we expect the BOT to push through with what it telegraphed and hike its policy rate by 25 basis points to 2.00 percent,” noted Aris Dacanay, ASEAN economist at HSBC.
“Considerable demand-side price pressures may emerge which can pose an upside risk to Thailand’s inflation outlook. At the center of this is the expectation that Thailand will exhibit punchy growth figures in the remaining quarters of 2023.”
The BOT has so far raised rates by a total of 125 basis points since August, a much more modest pace than many of its global peers, as the recovery in Thailand’s tourism-reliant economy has lagged much of Southeast Asia.
Among economists who had a longer-term view on rates, 11 of 20 expected the BOT to maintain them at 2.00 percent until at least end-year.
Of the remaining nine economists, five predicted rates would rise further to 2.25 percent or higher by then, while four forecast no change next week and they would be held at 1.75 percent till end 2023.
“Although we think the BOT will sound hawkish at the May meeting, the further drop in inflation suggests the scope for more hikes is narrowing fast,” wrote Charnon Boonnuch, economist at Nomura.
“We are more optimistic than the BOT on the economic recovery, as we think the tourism recovery will continue uninterrupted and exhibit more material improvement in H2 when the supply-side constraints ease further in Q2.”
Thailand’s economy expanded faster than expected in the first quarter due to a recovery in tourism, data showed last week.
The tourism-reliant economy’s recovery has lagged its regional peers due to COVID-19, but gathered steam in recent months as Chinese visitors returned. The revival of the sector, which accounts for 11-12 percent of its gross domestic product (GDP), is expected to help offset the impact from declining exports.
Thailand’s state planning agency reiterated its outlook for a 2.7 percent-3.7 percent GDP growth in 2023, versus 2.6 percent last year, saying the post-election atmosphere should be kept positive to build investor confidence. -Reuters
