Singapore, December 7, 2017 – The Thai economic recovery continues to gain momentum with some challenges from external uncertainties and domestic structural issues, according to the 2017 Annual Consultation Report on Thailand published by the ASEAN+3 Macroeconomic Research Office (AMRO) today. The report was prepared on the basis of AMRO’s Annual Consultation Visit to the country in June 2017 and data availability as of September 1, 2017.

Thailand’s economy is projected to expand at 3.5 percent in 2017 and 3.6 percent in 2018. Government spending and infrastructure investment, stronger export performance, and buoyant tourism are the main drivers of growth. Headline inflation is forecast at 0.7 percent in 2017 and to stay above the lower bound of Bank of Thailand (BOT)’s inflation target in 2018.

Thailand’s external position has strengthened further with its large current account surplus and ample international reserves. Residents’ outward investment has been growing, facilitated and spurred by BOT’s foreign exchange regulatory reform, portfolio diversification, and overseas business expansion by Thai companies.

Notwithstanding the sustained recovery, downside risks to growth stem from both uncertainty in global trade and domestic challenges. An intensification of trade protectionism or a sharp appreciation of the Thai baht may lower current account surplus. Domestically, albeit inching up in Q2 2017, a recovery of private investment would be weighed down by excess capacity utilization and the delay in implementation of some mega infrastructure projects. Moreover, the improvement in small and medium enterprises (SMEs) performance has been hampered by a protracted period of the economic recovery.

Risks to financial stability remain contained despite worsening loan quality and high household debt. Low profitability of SMEs has constrained their loan repayment capacity and has impaired banks’ asset quality. Although household indebtedness has receded, risks remain in low-income households, agriculture, SME-oriented households, and among the young generation. Ongoing financial regulatory reforms and continuing efforts to enhance financial discipline and promote financial literacy will ease households’ financial burden, enhance banks’ credit quality, and promote prudent borrowing behavior.

An appropriate policy mix should be formulated to support growth while maintaining financial stability. Given Thailand’s adequate fiscal space, an expansionary fiscal stance should be maintained and investment in public infrastructure should be stepped up. The enactment of the Fiscal Responsibility Law would help to safeguard long-term fiscal sustainability. The current monetary policy stance is appropriate, as monetary condition remains accommodative, and inflation, while low, is trending upwards.  Potential risks to financial stability may arise from investors’ growing search-for-yield behavior and the high level of household debt, although the household debt to GDP ratio has trends down. On the external front, the exchange rate is under upward pressure and should be appropriately managed to avoid exchange rate misalignments.

To achieve its goal of becoming a high-income country by 2026, Thailand’s ongoing structural reform momentum should be maintained. To address 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.  Meanwhile, comprehensive structural reforms can contribute to upgrading of capital investment and enhancing efficiency of resource allocation. The 20-year Strategic Plan, including the flagship Thailand 4.0 scheme, the Digital Thailand initiative and the Eastern Economic Corridor Development Plan, would help in advancing the technology level and enhancing the country’s competitiveness.

About AMRO and AMRO’s Annual Consultation Report:

The ASEAN+3 Macroeconomic Research Office (AMRO) was established to contribute to securing the economic and financial stability of the ASEAN+3 region, which include 10 ASEAN countries and China (including Hong Kong), Japan, and Korea. AMRO fulfills its mandate by conducting macroeconomic surveillance, supporting the implementation of the regional financial arrangements, the Chiang Mai Initiative Multilateralisation (CMIM), and providing technical assistance to the members.

The Annual Consultation Report was prepared in accordance with AMRO’s macroeconomic surveillance function. AMRO is committed to monitoring, analyzing and reporting to its members on their macroeconomic status and financial soundness. It also helps identify relevant risks and vulnerabilities, and assists members, if requested, in the timely formulation of policy recommendations to mitigate such risks.