Thailand’s economy is projected to slow from 4.1 percent in 2018 to 2.7 percent in 2019 and 3.1 percent in 2020, due to a decline in exports amid U.S.-China trade tensions, as well as a slowdown in private investment. Inflationary pressure is expected to be subdued reflecting the weak economic conditions and low oil prices, and headline inflation is projected to average 0.8 percent in 2019, and 1.0 percent in 2020, around the lower bound of the inflation targeting tolerance band.

Downside risks to growth continue to stem mainly from a further escalation of the US-China trade tensions. While there are early signs of positive trade diversion and investment relocation to Thailand as a result of the U.S.-China trade conflict, the negative spillover effects of the trade conflict are still greater.

Given the challenging global economic environment and easing global monetary conditions, Thailand can and should adopt more expansionary fiscal and monetary policies to support the weak economy, while employing macroprudential measures to address the pockets of risk in the financial sector. Fiscal policy should prioritize infrastructure investment and facilitate structural reforms in order to lift the growth potential and enhance the social security system to address challenges posed by the aging population, while monetary policy can focus more on supporting growth, which has fallen below potential, and the rise of headline inflation toward the target.

The report also contains analysis on two selected issues critical to the country’s macroeconomic development, namely long-run factors behind Thailand’s inflation dynamics as well as Thailand’s deepening trade and investment ties with the ASEAN+3 region.