Consumption Growth and Tourism Helps Thai Economy Recovery

Thailand’s economy is gradually recovering, but at a slower pace compared with its ASEAN peers and its economic activity expanded modestly by 1.9% in 2023 and 2.3% in the first three quarters of 2024, driven by private consumption growth and a rebound in tourism, the Washington-based International Monetary Fund (IMF) said on Thursday.

In its 2024 Article IV Consultation with the Thai officials, the IMF said that Inflation remained subdued, averaging 0.4% y-o-y annually in 2024, below the Bank of Thailand’s target range of 1% to 3%.

External factors such as the decline in global energy and food prices, lower import prices have played a role, but domestic factors such as energy subsidies, price controls, and the unwinding of pandemic-related fiscal support have also contributed to the lower inflation.

The current account balance strengthened to 1.4% of GDP in 2023, from -3.5% of GDP in 2022, and continues to register a moderate surplus as of November 2024, supported by the continued recovery in tourism and higher exports, the IMF noted.

A gradual cyclical recovery is expected to continue and the real GDP is projected to grow by 2.7% in 2024 and to increase to 2.9% in 2025. “This was underpinned by the expansionary fiscal stance envisaged under the 2025 budget, which includes additional cash transfers of 1% of GDP and a rebound in public investment,” the IMF said.

Tourism-related sectors are expected to continue to support growth, as well as private consumption that will be further boosted by the authorities’ cash transfers. As growth continues to firm up, inflation is expected to pick up but remain in the bottom half of the target range in 2025. The current account balance is expected to improve further in 2024 and 2025, driven by the ongoing recovery in tourist arrivals.

Risks to Economic Outlook

Risks to Thailand’s economic outlook are tilted to the downside. On the external front, an escalation of global trade tensions or deepening geo-economic fragmentation could disrupt Thailand’s export recovery and dampen FDI inflows, while increased commodity price volatility could affect growth and lead to inflation spikes, and potentially tighter-for-longer global financial conditions.

The intensification of regional conflicts could disrupt trade and travel flows while more frequent extreme climate events would adversely impact growth prospects. On the domestic front, the private sector debt overhang could impair financial institutions’ balance sheets and further decrease credit supply, negatively affecting growth. Renewed political uncertainty could hinder policy implementation and undermine confidence.

The slow recovery of Thailand economy is also rooted in Thailand’s longstanding structural weaknesses, while emerging external and domestic headwinds have also contributed to subdued inflation. The outlook remains highly uncertain with significant downside risks.

“As economic slack narrows, the focus should shift to rebuilding fiscal space. A less expansionary fiscal stance than envisaged under the FY25 budget would still provide impulse to support the recovery while helping to preserve policy space,” the IMF said.

It also felt that alternatively, reallocating part of the planned cash transfers toward productivity-enhancing investments or social protection would enable stronger inclusive growth and help reduce the public debt-to-GDP ratio. Starting in FY26, a revenue-based medium-term fiscal consolidation is needed to bring down public debt and rebuild buffers.

Thailand’s fiscal framework can be further strengthened but requires strengthening fiscal rules to better support the debt anchor by introducing a risk-based rules approach. Costs associated with quasi-fiscal operations such as energy price caps should be adequately accounted for, and fiscal risks closely monitored. Improving data provision for government finance statistics and SOEs is important, the IMF said.

Resolute structural reforms are needed to boost productivity and competitiveness. Reform priorities include facilitating competition and openness, upgrading physical and ICT infrastructure, upskilling/reskilling the labour force, increasing export sophistication by leveraging digitalisation, and strengthening governance.

“Providing an adequate social protection floor to vulnerable households could help enhance their resilience to shocks and address structural drivers of household debt accumulation,” the IMF added.