Singapore, May 30, 2017 – The ASEAN+3 Macroeconomic Research Office (AMRO) today publishes its 2016 Annual Consultation Report on Thailand, which was prepared on the basis of its Annual Consultation Visit to the country in August 2016 and data availability as of November 11, 2016.

According to the report, in 2017, the economy is expected to continue its gradual recovery with downside risks from stagnant global trade and subdued private investment, according to the report. The economy was projected to expand at 3.2 percent in 2017. Government spending and more public infrastructure investment are expected to be the main drivers for the 2017 growth. Meanwhile, sluggish global trade, together with increased tendency toward trade protectionism in advanced economies, will prolong the pace of export recovery and a revival of private investment.

In the first half of 2016, the Thai economy continued to gain momentum, driven by a strong recovery in private consumption, expanding public spending and tourist receipts. Meanwhile, sluggish global trade weighed on exports and private investment remained lackluster. Despite gradually edging up, low energy and food prices have kept headline inflation below Bank of Thailand’s inflation target of 2.5 percent (±1.5 percent). Core inflation was subdued at around 0.75 percent, while short-term inflation expectations declined.

On the external front, after King Bhumibol Adulyadej’s passing and the U.S. presidential election, there was a temporary and contained net selloff of foreign investors in Thai financial markets. However, the overall external position was strong on the back of a sizable current account surplus and ample international reserves.

In 2017, headline inflation is expected to rise gradually to the middle of the policy target in 2017, reflecting the moderate recovery of domestic demand and abating downward pressure of low energy prices. In the view of significant current account surplus, the balance of payments is expected to remain in a surplus. High international reserves will cushion the economy from adverse shocks to capital flow volatility.

Given the availability of policy space, the expansionary fiscal stance should continue while maintaining fiscal prudence over the medium term. Fiscal spending will help maintain the economic momentum and should continue. In particular, infrastructure investment should be executed in a timely manner within a well-coordinated long-term framework. The authorities’ efforts on the tax reform as well as the enactment of the Fiscal Responsibility Law to safeguard long-term fiscal sustainability is a welcome move.

The current monetary policy stance is sufficiently accommodative. Given the moderate economic growth and low inflation, there is scope for a further easing of monetary policy. However, potential risks to financial stability may also arise from the growing search-for-yield behavior of investors. In view of the strong external position, a persistent appreciation of the Thai baht will weigh on the export outlook. Thus, the exchange rate should be managed appropriately to avoid misalignment.

A few structural issues remain to be addressed for Thailand to escape the middle-income trap:

  • First, the further development of agricultural technology and mechanization is encouraged;
  • Second, more resources should be devoted to human resource development, since the lack of skilled labor remains a key challenge in the private sector as it moves up the value chain; and
  • Third, streamlining regulations and administrative procedures will improve the ease of doing business and attract more inward investment.