SINGAPORE, June 15, 2017 – Thailand’s economic growth is expected to expand further in 2017 with low inflation, according to the preliminary assessment by the ASEAN+3 Macroeconomic Research Office (AMRO) after its Annual Consultation Visit to the country from June 1 to 9, 2017.

The mission was led by Dr Sumio Ishikawa, AMRO Lead Economist, and participated by Dr Khor Hoe Ee, AMRO Chief Economist. Discussions centered on prospects for growth, policies for maintaining macroeconomic and financial stability, and structural reforms.

The economy continues to gain traction and growth is projected to reach 3.4 percent in 2017 while inflation remains subdued,” said Dr Ishikawa. “Despite gradual and broader recovery, headwinds to growth might come from uncertainties in global trade, delay of mega infrastructure investment projects, and rising trade protectionism.”

In 2018, the economy is projected to grow by 3.5 percent, while headline inflation is expected to reach the lower bound of Bank of Thailand’s inflation target.

The current monetary policy stance is appropriate, as monetary condition remains accommodative with ample liquidity in the financial system. Risks to financial stability are contained despite the deterioration of bank loan quality and a high level of household debt  which has gradually declined as a share of GDP for the last two years. However, potential risks may arise from the growing search-for-yield behavior of investors in a low interest rate environment. In addition, the mission team commends the authorities’ continued efforts to enhance financial discipline and financial literacy of the households are desirable to promote prudent borrowing behavior.

On the external front, the current account surplus is expected to remain large, but the surplus will narrow as infrastructure investment gathers pace. Residents’ outward investment will likely expand, facilitated by the Bank of Thailand’s foreign exchange regulatory reforms, and spurred by portfolio diversification abroad and business expansion of Thai corporate. Capital flow volatility may increase in the event of an unexpected shift in the external environment. However, given Thailand’s strong external position, any adverse impact on external stability is likely to be limited.

An expansionary fiscal stance should be maintained and investment in public infrastructure stepped up to support economic recovery and to shore up subdued private investment. Efforts in pushing forward the tax reforms and resorting to non-debt financing for mega infrastructure projects would help contain the fiscal deficit. The enactment of Fiscal Responsibility Law will safeguard Thailand’s medium-to-long term fiscal sustainability.

To achieve its ambition of becoming a high income country by 2026, Thailand should step up efforts to increase potential growth. First, in response to demographic challenges, more resources should be devoted to improving labor productivity and human resource development by re-skilling the labor force and reforming the education system to meet the needs of the changing economy.  Second, comprehensive structural reforms can contribute to upgrading of capital investment and enhancing efficiency of resource allocation. The 20-year Strategic Plan, including Thailand 4.0 scheme and the Eastern Economic Corridor Development Plan, is a welcome move. In addition, to cope with a rapid aging society, the social safety net should be enhanced further, while long-term fiscal sustainability should be considered.

The mission team would like to express its appreciation to the Thai authorities for their strong support and hospitality. The consultation visit has deepened AMRO’s understanding of the current macroeconomic situation and financial condition in the country, providing valuable insights.