Thailand’s economic recovery remains on track, with projected growth of 2.9% in the first half of the year and 4.2% in the second half, according to the Bank of Thailand.

Key Takeaways

  • Thailand’s economic growth is expected to be 2.9% in the first half of 2023 and 4.2% in the second half, with the central bank gradually normalizing interest rates.
  • Despite the economic recovery, exports are projected to remain flat for the year, while annual inflation is at its slowest pace in 22 months.
  • Thailand is expected to receive 29 million foreign tourists in 2023, with the number surpassing 15 million by the end of July.

The Thai economy is expected to continue expanding, driven mainly by tourism and private consumption. Headline inflation has returned to the target range, but there remain upside risks stemming from mounting demand pressures and higher cost pass-through from supply pressures.

The Thai economy is expected to grow by 3.6% in 2023 and 3.8% in 2024, driven by continued recovery in tourism and expansion in private consumption. Foreign tourist arrivals are expected to reach 29 and 35.5 million in 2023 and 2024, respectively.

The overall financial system remains resilient, but there is still a need to closely monitor financial market developments and volatilities, as well as debt serviceability of SMEs and low-income households with large debt burden.

Rate hike likely to occur in August

At the meeting on May 31, 2023, the Monetary Policy Committee voted unanimously to raise the policy rate by 0.25 percentage points from 1.75% to 2.00%. The MPC deems gradual policy normalization to be appropriate given the growth and inflation outlook.

The central bank plans to gradually raise interest rates to support economic growth and manage inflation. However, exports are expected to remain flat for the year, and inflation has fallen below the central bank’s target range.

Despite this, the BoT is likely to raise rates further at its next meeting in August.

29 million foreign tourists this year

Merchandise exports are recovering gradually and should pick up pace in the second half of 2023. Upside risks to Thailand’s growth outlook include higher-than-expected foreign tourist arrivals and a stronger stimulus from the new government’s economic policies.

Forecast for trading partners’ growth in 2022 is revised up

The forecast for trading partners’ growth in 2022 is revised up due to better-than-expected outturns in the US, euro area, and China, a continued global economic recovery supported by growth in the services sector, and a recovery in investment and the real estate sector in China.

The forecast for 2024 is revised down slightly due to the high base effect, tighter financial conditions, and potentially slower recovery in Asian exports. The federal funds rate is revised down throughout the forecast period due to tighter financial conditions and the gradual decline in inflation.

Regional currencies to appreciate

Regional currencies (excluding the Chinese yuan) would appreciate due to the recovery in the services sector and tourism, and export recovery in the latter half of 2023. Dubai crude oil prices would be unchanged throughout the forecast period, but crude oil supply is likely to tighten due to additional production cuts by the OPEC+ which will take effect in May as well as recovery in demand from China in the latter half of the year.

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