Solid growth in exports, combined with a gradual improvement in domestic demand, has prompted an upward revision of Thailand’s economic outlook by the central bank.
On July 5 the monetary policy committee of the Bank of Thailand (BOT) announced it was revising its forecast for GDP growth from 3.4% to 3.5% for this year, and to 3.7% in 2018, up from its earlier projections of 3.6%. Thailand’s economic outlook improved in the second quarter, the bank said in a statement.
It noted there were prospects for even better trade figures in the second half of 2017, citing expansion in merchandise exports across many product categories and destinations, as well as a recovery in tourism. While the BOT said increases in domestic demand were still soft and not yet broad-based, it forecast the gradual improvement seen in the first half of the year would continue.
Private consumption, boosted by improvements in farm income, is projected to grow by a steady 3.1% through this year, maintaining the same rate in 2018. However, the BOT acknowledged that future growth could face external risks. These included the questionable sustainability of growth among its key trading partners, uncertainties over US economic and foreign trade policy, monetary policies of major advanced economies, and the direction and impact of China’s economic structural reforms.
Investment increases, inflation nears target range
Exports were also a significant factor in higher levels of private investment, according to the BOT, which reported that private investment grew by 1.7% in the year to June, up on 0.4% for the whole of 2016, driven largely by investments in export-oriented manufacturing segments. Public investment, meanwhile, is forecast to grow by 7.7% this year, before rising by 9.2% in 2018, with government spending set to remain a driving force in the economy, despite some ongoing bottlenecks in project delivery. Headline inflation could see an uptick in the second half of the year, supported by supply-side factors and continued recovery in domestic demand. Following a negative inflation rate in both May and June, the BOT expects the consumer price index to rise by 0.8% this year, climbing to 1.6% in 2018 – within its medium-term target of 2.5% with a band of 1.5% on either side. While continuing to monitor factors such as appreciation of the Thai baht and short-term capital inflows, the central bank said it intends to maintain an accommodative monetary policy, and kept its key policy rate at 1.5%.
Economists forecast stronger growth, steady interest rates
In early July Kasikorn Research Centre also revised its forecast for the Thai economy, raising its projections for GDP expansion from 3.3% to 3.4%. With growth in the first half of 2017 higher than expected, thanks to solid exports and private consumption, the economic research group said this momentum should be carried through to the end of the year. The centre also forecast that the BOT would keep its key policy rate at 1.5% for the rest of this year, with little in the way of inflationary pressure to necessitate any increase. The forecasts of both the BOT and Kasikorn align with projections from the Asian Development Bank, which expects the Thai economy to grow by 3.5% this year.
BOT implements new controls on consumer credit
Sustainable long-term growth could be supported by new controls on credit. At the end of July the central bank announced regulatory reforms to increase controls over unsecured consumer credit as a means of curbing rising household debt. Household debt levels in Thailand remain among the highest in Asia, at close to 80% of GDP, according to BOT figures. Effective from the start of September, the measures involve a reduction in the credit card limit available to individuals with a monthly salary of less BT30,000 ($904), from five to 1.5 times their monthly income. New credit card applicants earning between BT30,000 ($904) and BT50,000 ($1507) per month will be permitted a limit that is three times that salary, while the maximum disbursal for those earning more than BT50,000 ($1507) will be five times their monthly income. The maximum interest rate on credit cards will also be reduced from 20% to 18%. Similarly, the credit line for new unsecured personal loan applicants will be limited to 1.5 times the monthly income of those earning below BT30,000 ($904), with a maximum of three accounts per customer. In moving to slow growth in unsecured consumer credit, the central bank’s aim is to encourage more sustainable spending, with the ratio of non-performing loans standing at 2.95% in the second quarter, up slightly on the 2.94% registered in the first. Though the reforms might take some time to have an impact, lower debt levels could help increase confidence and reinvigorate household consumption.