Thai economy boost: Bank forecasts GDP growth, increased tourism

Anticipating a stronger Thai economy, the Bank of Thailand has expressed confidence that GDP growth will surpass their expectations. This is attributed to the economic strategies implemented by the new government, combined with progress in the tourism and consumption sectors.

In a recent meeting, the Monetary Policy Committee (MPC) of the central bank stated that they foresee continuous growth in the Thai economy, albeit with some inflationary risks. According to the MPC, the driving forces behind this economic expansion are tourism and private consumption, along with a predicted recovery of goods exports by the latter half of 2023.

The committee identified China’s economic and policy developments as crucial factors affecting export and tourism growth in the Thai economy.

“Upside factors for growth include foreign tourist arrivals and the new government’s fiscal and economic policies, which could lead to stronger than expected domestic demand, especially in 2024,” the central bank stated.

GDP growth projections for 2023 and 2024 are 3.6% and 3.8%, respectively, Bangkok Post reported. The bank also anticipates a continued recovery of the Thai economy, with the tourism sector witnessing increased foreign arrivals across the board. Their prediction now stands at 29 million tourists in 2023 and 35.5 million in 2024, which is an upgrade from their March outlook of 28 million and 35 million, respectively.

Furthermore, the Bank of Thailand expects private consumption to gather momentum, driven by improvements in overall employment and labour income. This is particularly true for the services sector, and for the self-employed individuals who are directly benefiting from the recovering tourism industry.

Inflation risks, however, are associated with two factors. Firstly, demand pressures may increase in light of expanding economic activity, especially if the recovery of tourism or fiscal stimulus under the new government’s economic policies exceeds expectations. Secondly, in the Thai economy, the costs previously absorbed by producers might contribute to inflationary pressures.

The central bank also noted that future inflation dynamics will depend, in part, on the new government’s policies. For example, higher minimum wages could lead to increased costs of goods, while indexing the minimum wage to inflation may intensify the pressure on labour costs and goods prices, potentially resulting in a wage-price spiral with implications for long-term price stability.

However, the Bank of Thailand believes that such risks should be limited by several aspects of the Thai labour market, including its high flexibility, the low bargaining power of Thai workers compared with other countries, the small share of labour costs relative to total production costs, and the relatively insignificant proportion of wage earners in the workforce compared with advanced economies such as the US, Germany, and the UK.

The impact of a minimum wage increase on aggregate demand and risks of a wage-price spiral is expected to be limited compared to other countries, according to the central bank.

The MPC intends to closely monitor the new government’s policies, evaluating their inflationary implications on aspects like wages, firms’ pricing strategies, and public medium-term inflation expectations.

The Bank of Thailand estimates headline inflation at 2.5% in 2023 and 2.4% for 2024, while core inflation projections remain stable at 2% for both years.