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Economics

IMF foresees Thai GDP growth at 3% in 2016

The recovery is expected to strengthen moderately, with real GDP growth projected at 3 percent in 2016 and 3.2 percent in 2017. A slight improvement in confidence and low energy prices foreshadow a pickup in private consumption.

Boris Sullivan

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According to the latest IMF statement, the Thai economy recovery is expected to strengthen moderately, with real GDP growth projected at 3 percent in 2016 and 3.2 percent in 2017

“The Thai economy recovered in 2015 after a slowdown induced by political uncertainty. Output grew by 2.8 percent, while headline inflation dropped to -0.9 percent, undershooting the BOT’s target of 2.5±1.5 percent, mostly due to a fall in energy prices. Core inflation and inflation expectations also declined.

The current account surplus rose to 8.8 percent of GDP, thanks to a sizable improvement in the terms of trade, soaring tourism, and import compression associated with tepid domestic demand. Thailand’s financial markets weathered relatively well repeated episodes of global financial volatility.

“The recovery is expected to strengthen moderately, with real GDP growth projected at 3 percent in 2016 and 3.2 percent in 2017. A slight improvement in confidence and low energy prices foreshadow a pickup in private consumption.

Public investment would remain a key driver, rising over the next few years and crowding in private investment.

Headline inflation is projected to turn positive in 2016, but may take time to reach the mid-point of the inflation target band. The current account surplus is projected to decline over the medium term as the positive shocks to terms-of-trade partially reverse and domestic demand improves.

Regarding external risks, the IMF team referred to a possibly faster slowdown of the Chinese economy and capital outflows likely accelerated by global financial volatility

Important risks cloud the outlook.

On the external front, rebalancing in China may result in a faster slowdown or larger negative spillovers. A bout of global financial volatility could accelerate capital outflows and further tighten financial conditions.

On the domestic front, slower-than-expected execution of mega projects would reduce domestic demand. Negative inflation could linger longer than expected, resulting in higher real interest rates and a rising real debt burden. Household debt overhang could create headwinds to consumption and, in an adverse scenario, affect financial institutions’ balance sheets.

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