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Thai Risks to Recovery Persist

Thai Risks to Recovery PersistThai Risks to Recovery Persist

The International Monetary Fund (IMF) has slightly raised its economic growth forecast for Thailand to 3.7% this year but continues to warn of risks.

Domestic risks come from possible delays in public spending, weaker-than-expected private demand and political uncertainty, the IMF said in a conclusion report of the 2015 Article IV Consultation.

External risks include a surge in global financial volatility and protracted slow growth in advanced and emerging economies.

“The recovery is expected to continue in 2015 with growth projected at 3.7% on account of some rebound in consumption including from lower fuel prices and in private investment as backlogs of project approvals have been largely cleared by various government agencies,” the IMF said. “Accommodative monetary policy will also support the recovery.”

In February, the IMF estimated that Thailand’s real GDP growth would be 3.5% this year due mainly to private investment stemming from approved projects and some recovery in private consumption.

 Investments Hampered

However, private investment remains hampered by low capacity utilization, weak external demand and domestic political uncertainty, while the expansion of public investment has proved more difficult than expected, the IMF said.

“On the upside, consumption, investment and exports may experience a stronger boost from sharply lower oil prices,” it said.

The IMF said continued fiscal and monetary support would be needed for the period ahead, while further structural reforms and infrastructure investment would remain key to strong and inclusive growth in the long term.

The IMF’s executive directors welcome the reforms for fiscal sustainability and generalized subsidy programs.

They also view the Bank of Thailand’s monetary policy as warranted, noting that the policy rate could be eased further given the delays in economic recovery.

Volatile capital inflows will remain a challenge for macroeconomic management on the back of uncertainty in global financial markets, but Thailand’s strong policy buffers including ample reserves and a flexible exchange rate regime have served the country well and provided the tools to address potential market turbulence, the IMF said.

The IMF projects Thailand’s core and headline inflation will stand at 1.7% and 0.1% this year, respectively.

 

Financialtribune.com