Economic Outlook for Thailand

By Orathai Sriring, Thanadech Staporncharnchai, Devjyot Ghoshal

BANGKOK (Reuters) – Thailand’s economic growth may falter to under 2.9% this year following a weaker-than-expected fourth quarter. This situation arises despite a government cash handout intended to stimulate growth, according to the central bank chief.

The Bank of Thailand previously anticipated a 2.9% economic expansion this year, slightly lower than the finance ministry’s projection of 3% growth.

Governor Sethaput Suthiwartnarueput noted, “I have to say that there are some downside risks to that figure,” in an interview with Reuters. The economy might only expand close to 2.7% in 2024, with the final quarter’s growth pace expected to be below 3%, largely due to weaker-than-expected consumption.

Sethaput stated, “The impact of the handouts and the stimulus was less than we had anticipated. The handouts sometimes helped pay down debt rather than increase consumption.”

This is Sethaput’s first commentary this year regarding the economic growth outlook and the effectiveness of the government’s $14 billion handout policy.

Digital Wallet Program
Thailand’s government plans to implement the third phase of its “digital wallet” program in April, intending to stimulate “very high” growth in the first quarter. This initiative is a key component of the ruling party’s election campaign, launched last September after multiple delays.

Monetary Policy Stance
The Bank of Thailand’s monetary policy remains generally neutral, with an inflation projection of 1.1% this year, which fits within the target band of 1% to 3%. However, the central bank has concerns about baht volatility and has no specific currency levels in mind.

“We feel…when you take it altogether, the current policy rate is appropriate for striking the right balance for those things,” Sethaput said. “That said, if things change, we’re prepared to adjust.”

Last month, the central bank kept its main interest rate at 2.25% after a surprising cut in October, with the next policy review scheduled for February 26.

Sethaput expressed that the current inflation target band has been effective, despite the government’s aim for price growth to reach the 2% midpoint. He warned against fixating on a specific numerical target, as it could lead to adverse unintended effects.

The central bank aims to maintain overall inflation at a low level, even if it doesn’t exactly hit 2%. There are no signs of deflation in Thailand, he noted, despite a mere 0.4% price increase last year.

Furthermore, he highlighted the importance of Thailand’s high international reserves, approximately $237 billion as of mid-January, providing a buffer of strength and stability during uncertain times.

Geopolitical Uncertainty
The potential return of Donald Trump as U.S. president has introduced additional uncertainty, yet it remains too early to assess its impact on Thailand, according to Sethaput, who will conclude his five-year term in September. Southeast Asia’s second-largest economy hopes to leverage changes in supply chains influenced by looming U.S. tariffs.

Cryptocurrency Concerns
Sethaput emphasized the central bank’s cautious approach towards cryptocurrency, despite the Thai government promoting it as an alternative payment method through a proposed digital asset ‘sandbox’ in Phuket. He pointed out that cryptocurrencies lack stable value, have limited scalability, and could fragment the payment system. He reaffirmed that Thailand’s existing Promptpay digital payment platform is functioning effectively.

“The benefits of the use case must be very clear as there are risks involved in making that transition,” he concluded.